STATE OF ILLINOIS ILLINOIS COMMERCE COMMISSION Energy ... · SC-WK”) respectfully submit their Initial Brief in this matter. I. OVERVIEW The Illinois Commerce Commission (“Commission”)

STATE OF ILLINOIS ILLINOIS COMMERCE COMMISSION

Dakota Access, LLC and Energy Transfer Crude Oil Company, LLC

: : :

Joint Petition for an Order under Section 8-503 of the Public Utilities Act for authority to install additional pumping stations and pumping facilities on existing certificated pipelines in the State of Illinois.

: : : : :

19-0673

INITIAL BRIEF OF

SAVE OUR ILLINOIS LAND, SIERRA CLUB, AND WILLIAM KLINGELE

*** PUBLIC VERSION ***

April 23, 2020

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Table of Contents I. OVERVIEW ........................................................................................................................... 4

II. JOINT PETITIONERS’ PROPOSAL ................................................................................ 5

III. STATUTORY AND LEGAL STANDARDS .................................................................. 7

A. Section 8-503 of the PUA .......................................................................................... 7

B. Section 15-401 of the PUA ........................................................................................ 8

C. The Joint Petition is Deficient in Not Seeking Section 15-401 Certification 11

D. Burden of Proof ......................................................................................................... 19

E. Section 8-101 of the PUA Does Not Create a Legal Obligation for Joint Petitioners to Meet Shipper Demands for Transportation Services ...................... 20

F. Interstate Commerce Act Does Not Require that Joint Petitioners Expand Capacity to Meet Customer Demand .............................................................................. 22

IV. PUBLIC NEED ................................................................................................................ 24

A. Commission’s Determination of Need in Other Common Carrier by Pipeline Dockets................................................................................................................... 25

1. Lakehead .................................................................................................................. 25

2. Dockets after Lakehead ....................................................................................... 28

B. Joint Petitioners Reliance on Short-Term Production Forecasts Is Not Sufficient to Meet Its Burden of Proof for a Public Need .......................................... 34

C. Joint Petitioners’ Reliance on TSA Contractual Commitments Is Insufficient to Meet Its Burden of Proof ......................................................................... 40

D. Existing Take-Away Capacity from North Dakota Is Sufficient to Transport Forecasted and Contracted Volumes ............................................................................. 44

E. Refineries Are Operating at Capacity And Do Not Need More Crude ......... 47

F. Additional Crude Volumes Appear Destined for Export ................................. 53

G. The Public Burdens Outweigh the Private Benefits ........................................ 59

1. Balancing Costs and Benefits is Appropriate and Necessary .................. 59

2. Purported Benefits .................................................................................................... 63

3. Burdens of Joint Petitioners’ Proposal ............................................................... 69

4. Public versus Private ............................................................................................ 86

5. A Net Burden on the Public ................................................................................ 91

H. Conclusion on Public Need .................................................................................... 92

V. DESIGN, ENGINEERING, AND OPERATIONS........................................................... 92

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A. Surge Overpressure ................................................................................................. 95

B. Specpoint Break ...................................................................................................... 104

C. The Questionable Record of Joint Petitioners’ Operator ............................. 105

D. Inadequate Leak Detection and Response Time ............................................ 108

VI. OTHER............................................................................................................................ 113

A. Interstate Commerce Act Compliance ........................................................... 113

1. Applicable Statutes and Case Law ................................................................. 113

2. The Record Indicates Likely Violations ......................................................... 124

B. Section 8-101 of the PUA ...................................................................................... 133

C. Conclusion and Consequences .......................................................................... 134

VII. CONCLUSION ............................................................................................................... 135

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STATE OF ILLINOIS ILLINOIS COMMERCE COMMISSION

Dakota Access, LLC and Energy Transfer Crude Oil Company, LLC

: : :


: : : : :

19-0673

INITIAL BRIEF OF

SAVE OUR ILLINOIS LAND, SIERRA CLUB, AND WILLIAM KLINGELE

*** PUBLIC VERSION ***

Pursuant to Section 200.800 of 83 Illinois Administrative Code 200, “Rules of

Practice,” and the schedule adopted by the Administrative Law Judge (“ALJ”), Save Our

Illinois Land (“SOIL”), Sierra Club (“SC”), and William Klingele (“WK”) (collectively “SOIL-

SC-WK”) respectfully submit their Initial Brief in this matter.

I. OVERVIEW

The Illinois Commerce Commission (“Commission”) has jurisdiction over

improvements and changes to existing common carrier crude oil pipelines pursuant to

Section 8-503 of the Public Utilities Act (“PUA”), 220 ILCS 5/1-101 et seq., which section

also contains the standards applicable to the exercise of such jurisdiction. PUA Section

15-401(a) and (b) require that crude oil pipeline companies apply for a certificate of good

standing (“Certificate”) prior to beginning or continuing construction of a pipeline to the

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extent that a need for service exists and the public convenience and necessity requires

issuance of such Certificate.

The Joint Petition of Dakota Access, LLC (“DA”) and Energy Transfer Crude Oil

Company, LLC (“ETCO”) (collectively “Joint Petitioners”) seeks authorization to construct

additional pumping stations and related facilities along the existing DA and ETCO

pipelines (“DA Pipeline” and “ETCO Pipeline,” respectively) within the State of Illinois.

The evidence in the record demonstrates that Joint Petitioners have failed to meet the

burden under both Section 8-503 and Section 15-401(b) such that the Commission should

not grant the Joint Petition.

II. JOINT PETITIONERS’ PROPOSAL

Joint Petitioners received authority from the Commission to construct and operate

their respective pipelines and to otherwise operate as common carriers by pipeline in

Docket Nos. 14-0754 (DA) and 14-0755 (ETCO) on December 16, 2015 and December

9, 2015, respectively. In these dockets the Commission entered Orders finding a public

need for a crude oil pipeline transportation service to ship up to 570,000 barrels per day

(“bpd”) of crude oil from North Dakota to Patoka, Illinois, on the DA Pipeline, with

continuing service on the ETCO Pipeline to Nederland, Texas. The Commission also

found that Joint Petitioners were fit, willing, and able to provide this level of service, and

that therefore the public convenience and necessity required issuance of a Certificate. In

describing the authorized service, both Orders described a maximum capacity of 570,000

bpd, and both Orders permitted the construction and operation of the proposed pipelines

“as described in this Order.” (14-0754, Order at 53; 14-0755, Order at 27). To be clear,

Joint Petitioners did not request authorization to provide a crude oil transportation service

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with a capacity greater than 570,000 bpd; the record in these dockets contains no mention

that the pipelines would be capable of operating at a greater capacity; the Orders

considered a public need for service up to 570,000 bpd and no more; and the Orders

evaluated Joint Applicants’ fitness, willingness, and ability to provide only this level of

service. Therefore, the Certificates issued by the Commission authorized Joint

Petitioners to provide crude oil transportation service of up to 570,000 bpd of light sweet

crude oil from North Dakota to Patoka, Illinois, with continuing service on ETCO’s pipeline

system from Patoka, Illinois to Nederland, Texas. Both pipelines were placed in service

in Illinois in June of 2017, and since then Joint Petitioners have operated the pipelines as

one system.

The pumping facilities Joint Petitioners propose to construct will enable them to

transport up to 1,100,000 bpd from North Dakota to Texas. The proposal includes

construction of a new pump station near Carthage, Illinois in Hancock County along the

DA Pipeline with an aggregate 30,000 horsepower (“HP”). At Patoka, Illinois, the

proposed construction involves adding two 6,000 HP pumps and replacing two pumps at

an existing pump station, bringing total pumping capacity at Patoka to 24,000 HP. Along

the ETCO Pipeline, near Joppa, Illinois in Massac County, Joint Petitioners propose to

construct a new pump station with an aggregate 18,000 HP. Independent from their

request under the Joint Petition, Joint Petitioners also plan to add increased storage

capacity at their facilities in Patoka, Illinois. (Joint Petition, ¶ 2, 3) Joint Petitioners refer

to their proposal as their capacity optimization plan. (Id., ¶ 2)

Joint Petitioners have failed to demonstrate that their proposal is needed or in the

public interest. SOIL-SC-WK come to this conclusion after a long and arduous process

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during which they experienced a great deal of recalcitrance and obstruction by Joint

Petitioners. As SOIL-SC-WK noted in their earlier filings,1 Joint Petitioners have on

multiple occasions objected to providing and refused to provide relevant information

related to the need for the project, the safety aspects of nearly doubling throughput, and

even basic information such as the age of ETCO’s refurbished natural gas pipeline. Joint

Petitioners’ antagonism in the discovery process, repeated objection to allowing time to

consider information whenever it was eventually provided (at times upon the order of the

ALJ and Commission), and apparent presumption of approval has left the Commission

with an insufficient record upon which to find in Joint Petitioners’ favor.

III. STATUTORY AND LEGAL STANDARDS

A. Section 8-503 of the PUA

The Commission’s authority over facility changes made by common carriers by

pipeline emanates in part from Section 8-503 of the PUA, which is applicable to common

carriers via Section 15-101. Section 15-101 identifies other provisions of the PUA outside

of Article XV that are applicable to common carriers, which include Section 8-503. Section

8-503 provides in relevant part:

Whenever the Commission, after a hearing, shall find that additions, extensions, repairs or improvements to, or changes in, the existing plant, equipment, apparatus, facilities or other physical property of any public utility or of any 2 or more public utilities are necessary and ought reasonably to be made or that a new structure or structures is or are necessary and should be erected, to promote the security or convenience of its employees or the public or promote the development of an effectively competitive electricity market, or in any other way to secure adequate service or facilities, the Commission shall make and serve an order authorizing or directing that such additions, extensions, repairs, improvements or changes be made, or such structure or structures be erected at the location, in the

1 See, for example, SOIL-SC’s December 9, 2019 Petition for Interlocutory Review, paragraphs 28-53.

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manner and within the time specified in said order;

SOIL-SC-WK concur with Joint Petitioners that Section 8-503 is applicable to their

proposed capacity optimization plan. The plain language of this section makes clear that

it (a) authorizes Commission jurisdiction over “additions, extensions, repairs or

improvements to, or changes in” existing pipelines; and (b) contains the standard under

which the Commission may authorize such “improvements or changes.”

B. Section 15-401 of the PUA As noted above, Section 15-401 requires a common carrier to apply for and

possess a Certificate and provides in relevant part:

(a) No person shall operate as a common carrier by pipeline unless the person possesses a certificate in good standing authorizing it to operate as a common carrier by pipeline. No person shall begin or continue construction of a pipeline or other facility, other than the repair or replacement of an existing pipeline or facility, for use in operations as a common carrier by pipeline unless the person possesses a certificate in good standing. (b) Requirements for issuance. The Commission, after a hearing, shall grant an application for a certificate authorizing operations as a common carrier by pipeline, in whole or in part, to the extent that it finds that the application was properly filed; a public need for the service exists; the applicant is fit, willing, and able to provide the service in compliance with this Act, Commission regulations, and orders; and the public convenience and necessity requires issuance of the certificate. Evidence encompassing any of the factors described in items (1) through (9) of this subsection (b) that is submitted by the applicant, any other party, or the Commission's staff shall also be considered by the Commission in determining whether a public need for the service exists under either current or expected conditions. The changes in this subsection (b) are intended to be confirmatory of existing law.

In its determination of public convenience and necessity for a proposed pipeline or facility designed or intended to transport crude oil and any alternate locations for such proposed pipeline or facility, the Commission shall consider, but not be limited to, the following:

(1) any evidence presented by the Illinois Environmental Protection Agency regarding the environmental impact of the proposed pipeline or other facility; (2) any evidence presented by the Illinois Department of

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Transportation regarding the impact of the proposed pipeline or facility on traffic safety, road construction, or other transportation issues; (3) any evidence presented by the Department of Natural Resources regarding the impact of the proposed pipeline or facility on any conservation areas, forest preserves, wildlife preserves, wetlands, or any other natural resource; (4) any evidence of the effect of the pipeline upon the economy, infrastructure, and public safety presented by local governmental units that will be affected by the proposed pipeline or facility; (5) any evidence of the effect of the pipeline upon property values presented by property owners who will be affected by the proposed pipeline or facility, provided that the Commission need not hear evidence as to the actual valuation of property such as that as would be presented to and determined by the courts under the Eminent Domain Act; (6) any evidence presented by the Department of Commerce and Economic Opportunity regarding the current and future local, State-wide, or regional economic effect, direct or indirect, of the proposed pipeline or facility including, but not limited to, property values, employment rates, and residential and business development; (7) any evidence addressing the factors described in items (1) through (9) of this subsection (b) or other relevant factors that is presented by any other State agency, the applicant, a party, or other entity that participates in the proceeding, including evidence presented by the Commission's staff; (8) any evidence presented by a State agency or unit of State or local government as to the current and future national, State-wide, or regional economic effects of the proposed pipeline, direct or indirect, as they affect residents or businesses in Illinois, including, but not limited to, such impacts as the ability of manufacturers in Illinois to meet public demand for related services and products and to compete in the national and regional economies, improved access of suppliers to regional and national shipping grids, the ability of the State to access funds made available for energy infrastructure by the federal government, mitigation of foreseeable spikes in price affecting Illinois residents or businesses due to sudden changes in supply or transportation capacity, and the likelihood that the proposed construction will substantially encourage related investment in the State's energy infrastructure and the creation of energy related jobs; and (9) any evidence presented by any State or federal governmental entity as to how the proposed pipeline or facility will affect the security, stability, and reliability of energy in the State or in the region. In its written order, the Commission shall address all of the evidence

presented, and if the order is contrary to any of the evidence, the

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Commission shall state the reasons for its determination with regard to that evidence.

* * *

(d) A common carrier by pipeline may request any other approvals as may be needed from the Commission for completion of the pipeline under Article VIII or any other Article or Section of this Act at the same time, and as part of the same application, as its request for a certificate of good standing under this Section.

Section 15-401 complements Section 8-503 by:

• prohibiting persons from operating as common carriers by pipeline absent receipt

of a Certificate from the Commission;

• prohibiting the start or continuation of construction of a new pipeline or changes to

an existing pipeline for use in common carrier operations absent a Certificate;

• defining the evidentiary scope of Commission hearings for proposed new pipelines

and improvements or changes to existing pipelines;

• identifying the sources of evidence that the Commission may consider; and

• requiring that Commission orders for proposed new pipelines and improvements

and changes to existing pipelines address all of the evidence presented.

Put another way, Section 15-401 provides the enforcement and procedural requirements

needed to implement the jurisdictional authority and decision standards established by

Section 8-503. Thus, petitions seeking to construct “additions,” “improvements,”

“extensions,” or “changes” to existing pipelines are subject to both Sections 8-503 and

15-401.

The contiguous nature of Sections 8-503 and 15-401 is also demonstrated by the

scope of the single jurisdictional exception to Section 15-401. Specifically, Section 15-

401 states that, “other than the repair or replacement of an existing pipeline or facility,” it

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is applicable to all common carrier pipeline construction. The fact that this exception

relates to existing pipelines indicates that all other instances of construction related to

existing pipelines are subject to Section 15-401.

The only pipeline construction activities that are subject to Section 8-503 but not

subject to 15-401 are repairs and replacements of existing pipelines. Since repairs and

replacements would not change the transportation service authorized by the Commission

when a pipeline is approved, it makes sense that the Commission actions related to

repairs would not be subject to the full requirements of Section 15-401. It also makes

sense that any subsequent changes to the transportation service approved for a new

pipeline would be subject to the same Section 15-401 procedural requirements.

Nothing in the language of these sections indicates that they are mutually

exclusive, such that the Commission must give each section its full independent force.

Moreover, Section 15-401(d) removes any ambiguity about the complementary roles of

these laws by stating that an existing “common carrier by pipeline may request any other

approvals as may be needed from the Commission for completion of the pipeline under

Article VIII . . . at the same time, and as part of the same application, as its request for a

certificate of good standing under this Section.,” which article includes Section 8-503.

The plain language of the law provides a mechanism by which applicants may comply

with both Sections 8-503 and 15-401 at the same time.

C. The Joint Petition is Deficient in Not Seeking Section 15-401 Certification Contrary to the plain meaning of these laws, the Joint Petition does not seek

authority under Section 15-401, and instead assumes that the only section applicable to

the proposed changes is Section 8-503. The Commission should clarify that both Section

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8-503 and Section 15-401 apply to Joint Petitioners’ proposed capacity optimization plan.

SOIL-SC raised the applicability of Section 15-401 as a threshold matter through

its August 20, 2019 Motion for Amendment or Dismissal of Joint Petition, for Investigation,

and to Stay Schedule. In his September 12, 2019 ruling on SOIL-SC’s August 20, 2019

motion, the ALJ found that Joint Petitioners have the right to determine what relief to seek

in their Joint Petition, but that SOIL and SC can challenge the sufficiency of the Joint

Petition in their testimony and pleadings, including in briefing. In denying SOIL-SC’s

September 18, 2019 petition for interlocutory review of the ALJ’s ruling, the Commission

affirmed the ALJ with Chair Zalewski specifically stating, “If the parties wish to challenge

the sufficiency of the Petition, they can do so in the testimony and pleadings.” (October

10, 2019 Commission Special Open Meeting Tr. at 4) Chair Zalewski stated further, “I

want to emphasize the importance of developing a full record in this case and encourage

the ALJ and the parties to work to ensure all relevant evidence is reflected in the record.”

(Id.)2 SOIL-SC-WK understand that in affirming the ALJ, the Commission did not rule on

the applicability of Section 15-401 but rather that Joint Petitioners were free to choose

under which sections of the PUA to file the Joint Petition, with the determination of

whether they should have included Section 15-401 to be made at the end of this

proceeding. Accordingly, SOIL-SC-WK hereby reassert that the Joint Petitioners were

required by law to seek approval of the proposed improvements and changes under both

Section 8-503 and Section 15-401.

Throughout this proceeding SOIL-SC-WK have continuously asserted that the

2 SOIL-SC-WK have endeavored to develop a complete record, although due to Joint Petitioners’ recalcitrance, significant relevant information which is discussed elsewhere in this Initial Brief has not been provided.

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Joint Petition should have been filed pursuant to and is subject to the requirements of

Section 15-401, such that Joint Petitioners erred in not seeking authorization under that

provision. The Commission granted each Joint Petitioner a Certificate in the

aforementioned Docket Nos. 14-0754 and 14-0755. Those Certificates were premised

on the pipelines transporting up to 570,000 bpd and certainly did not contemplate a

massive increase in throughput of 1,100,000 bpd and the pumping stations and facilities

proposed under Joint Petitioners’ capacity optimization plan. Further, the Commission

did not evaluate whether there was a need for pipeline transportation services with a

capacity of 1,100,000 bpd, nor did the Commission evaluate Joint Applicants’ fitness and

ability to transport this much greater daily volume of crude oil. In the present docket, Joint

Petitioners’ proposal to nearly double the crude oil throughput capacity on the existing

pipelines will dramatically change the operating characteristics of the pipelines from what

the Commission previously considered.3

Joint Petitioners’ possession of a Certificate based on the record in Docket Nos.

14-0754 and 14-0755 does not create a license to augment the underlying pipelines in

any way they wish without regard to Section 15-401. The above emphasized language

from subsection (a) of Section 15-401 addresses the very situation at hand. Joint

Petitioners propose to construct new facilities along their previously certificated pipelines

and in no way have suggested that the new facilities merely constitute a “repair or

3 Note that a review of the records in Docket Nos. 14-0754 and 14-0755 indicate that the technical operating characteristics of the pipelines do not appear to have received much, if any, consideration. For example, while the records reflect the technical design and operating characteristics of the new pipe each petitioner proposed to install (see Docket No. 14-0754, Application at 28 and Docket No. 14-0755, Application at 30), the record in Docket No. 14-0755 conspicuously lacked any evidence of the age or condition of the natural gas pipeline ETCO proposed to use to transport crude oil. Not until this docket and after SOIL-SC’s October 24, 2019 Motion to Compel did the Commission learn that the natural gas pipeline ETCO relies upon was constructed in the 1960s. Such lack of consideration of pertinent details in Docket Nos. 14-0754 and 14-0755 makes the need for their consideration in the present docket all the more important.

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replacement of an existing pipeline or facility.” Under the plain language of subsection

(a), Joint Petitioners must obtain either a new or amended Certificate to construct the

facilities contemplated under their capacity optimization plan because those facilities are

not repairs or replacements of their existing pipelines. To conclude that Joint Petitioners

may rely on their earlier Certificates from Docket Nos. 14-0754 and 14-0755 establishes

a dangerous precedent not only in the context of common carriers, but also in the context

of other utilities that must obtain a certificate of public convenience and necessity for their

facilities. The Commission should not allow common carriers to dramatically expand the

scope of their services absent compliance with Section 15-401.

Joint Petitioners’ disregard for the limiting language in Section 15-401(a) and

interpretation of the statute as giving them as much authority as they desire to operate as

a common carrier is disturbing. In essence, once authority is granted under Section 15-

401, Joint Petitioners seem to believe that there is no need to seek additional authority

under that section. Even though Joint Petitioners told the Commission and public in 2014

that they only plan on transporting up to 570,000 barrels per day, Joint Petitioners would

now have the Commission believe that absolutely nothing prohibits them from doubling,

tripling, or quadrupling that capacity if the Commission did not explicitly limit the

throughput volume. Never mind the fact that the Commission relied upon Joint

Petitioners’ description of their project, describing its understanding of the project, and in

coming to its decision in the Orders entered in Docket Nos. 14-0754 and 14-0755.

According to Joint Petitioners, the Commission and the public were apparently just

supposed to assume and accept that the operating parameters of the pipelines would

change in unknown ways and at unknown points in the future. SOIL-SC witness Richard

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Stuckey commented on the throughput capacity of the original Certificates being up to

570,000 bpd in his direct testimony (SOIL-SC Ex. 1.0, lines 47-53) and noted in his

rebuttal testimony that none of Joint Petitioners’ nine rebuttal witnesses disagreed with

his observation. (SOIL-SC Ex. 4.0, lines 33-39)

To the extent Joint Petitioners argue that the Commission’s Order in Enbridge

Energy Partners, L.P. and Enbridge Energy, Ltd. P’ship, ICC Docket No. 06-0470 (Order,

April 4, 2007), (Order on Reopening, August 6, 2013), (“Enbridge”) establishes precedent

for a pipeline capacity expansion without regard for Section 15-401, such reliance is

misplaced. SOIL-SC-WK recognize that in 2007 the Commission granted Enbridge

Energy Partners, L.P. and Enbridge Energy, Limited Partnership (collectively “Enbridge”)

authority under Section 15-401 to construct and operate a 400,000 bpd pipeline, and then

under the same docket number Enbridge returned in 2013 under just Section 8-503 and

obtained authority to install additional pumping capacity. The distinction, however, is that

unlike the case at hand, Enbridge raised in its original common carrier filing that it may

later increase the capacity of the subject pipeline with the addition of new pumps. (Docket

No. 06-0470, Application at 13, footnote 8) Therefore, the possibility of such expansion

was within the scope of that docket. Moreover, no party chose to contest whether

Enbridge’s 2013 application was required to comply with Section 15-401, such that the

Commission did not consider the applicability of this section in that particular

circumstance.

Even had Enbridge not foreshadowed its capacity increase, and even if the 2013

order is deemed to be an express ruling that Section 15-401 does not apply to pipeline

additions, improvements, and changes, nothing prevents the Commission from

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acknowledging that it was error to not consider Section 15-401 in Docket No. 06-0470.

As is well established, the Commission is not limited by res judicata. For example, in

Commonwealth Edison Co. v. Ill. Commerce Comm'n, the Illinois Supreme Court held

that it has long recognized that the Commission "is not a judicial body, and its orders are

not res judicata in later proceedings before it." (2016 IL 118129, ¶ 24, 402 Ill. Dec. 36, 42,

51 N.E.3d 788, 794, citing Mississippi River Fuel Corp. v. Illinois Commerce Comm'n, 1

Ill. 2d 509, 513, 116 N.E.2d 394 (1953)) The Court noted further that as a regulatory

body, the Commission has the "power to deal freely with each situation as it comes before

it, regardless of how it may have dealt with a similar or even the same situation in a

previous proceeding." (Id.) So even if Enbridge had not referenced the possibility of a

capacity increase in its original application in Docket No. 06-0470, such an oversight in

an uncontested docket from six years ago should not be used to justify the misapplication

of the law today. Unlike in Enbridge, where the issue was never raised or mentioned, the

issue of the applicability of Section 15-401 to a significant pipeline alteration is now raised

and is squarely before the Commission for its determination.

Moreover, the Commission has previously held that uncontested cases should not

be relied upon as precedent when presented with conflicting positions in a similar but

contested case. In its Order on the application of Lakehead Pipe Line Company

(“Lakehead”) for a Certificate under Section 15-401, the Commission noted that it had

considered the merits of similar applications based only on the testimony of the applicant

company. (Lakehead Pipe Line Co., L.P., ICC Docket No. 96-0145, 1997 Ill. PUC Lexis

255 (Order, May 7, 1997), aff’d, 296 Ill. App. 3d 942, 696 N.E.2d 345 (3d Dist. 1998))

Based on the testimony of the applicants in prior dockets and in the absence of any

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alternative testimony provided for the Commission’s consideration in those dockets, the

Commission found in favor of the applicants. In the context of Lakehead’s application,

however, the Commission was presented with testimony conflicting with Lakehead’s

position. The Commission concluded that it was not bound by past uncontested cases

and specifically held that “[a]n uncontested case should not be considered as precedence

to judge the instant proceeding.” (Id., Order at 33) Being a Commission finding, such a

conclusion is not itself precedence, but nevertheless remains a prudent and wise

determination warranting continued adherence. Just as the Commission found with

regard to Lakehead’s application in Docket No. 96-0145, the Commission should not feel

compelled to follow the uncontested Order in Docket No. 06-0470 when deciding whether

Section 15-401 of the PUA should apply to Joint Petitioners’ proposed pipeline capacity

expansion. To be clear, SOIL-SC-WK do not agree that Docket No. 06-0470 is analogous

to the docket at hand because Enbridge indicated that it may plan to expand the capacity

of its pipeline in its original common carrier docket, which is in contrast to Joint Petitioners’

original common carrier dockets, but to the extent that the Commission sees parallels

between Docket No. 06-0470 and the pending docket, the Commission should not

consider the absence of consideration of Section 15-401 in an earlier uncontested docket

persuasive for purposes of this contested docket.

Commission precedent supports SOIL-SC-WK’s interpretation and analysis. In

Docket No. 13-0433, Explorer Pipeline Co. filed an application for approval under PUA

Sections 8-503 and 8-509 for an extension to an existing Illinois pipeline, consisting of 18

miles of new pipeline (the “Manhattan Extension Project”). (Explorer Pipeline Co., ICC

Docket No. 13-0433 (Petition, July 3, 2013)) The previously-certificated pipeline was

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being used for delivery of diluents, a petroleum product. The ALJ issued a notice asking

applicant and Commission Staff (“Staff”) to address whether a prior certificate is sufficient

for the new project. (Id., (Notice of ALJ’s Ruling, August 21, 2013)) In response, the

applicant filed an amended application adding a request for a certificate under Section

15-401. (Id., (Amended Petition, August 27, 2013))

Noteworthy in the consideration of the applicability of Section 15-401 is Joint

Petitioners’ own acknowledgement that Section 15-401 may apply. Specifically, in

footnote 10 of the Joint Petition, Joint Petitioners state they “would not object were the

Commission to conclude that their [Certificate] should also be amended in this

proceeding, pursuant to Section 15-401….” This concession by Joint Petitioners

contradicts their own vehement insistence that Section 15-401 does not apply. (See Joint

Petitioners’ August 27, 2019 Response to Motion for Amendment or Dismissal of Joint

Petition, for Investigation, and to Stay Schedule, at 2-9.)

Because Section 15-401 is clearly applicable and the Commission may not by

order authorize a violation of the plain language of an applicable statute, it is appropriate

for the Commission to conclude that the Joint Petition is deficient for failing to address the

requirements of Section 15-401. Furthermore, given the applicability of Section 15-401,

it is also appropriate to consider under subsection (b) thereof whether a public need for

the capacity optimization plan exists; whether Joint Petitioners are fit, willing, and able to

nearly double the throughput capacity of their pipelines in a manner consistent with the

PUA, Commission rules, and orders; and whether the public convenience and necessity

require granting the requested relief. As the evidence described below will reflect, there

is no public need for Joint Petitioners’ plan, there is insufficient information to conclude

19

that Joint Petitioners are fit and able to raise the throughput capacity to 1,100,00 bpd in

a safe manner, and the public convenience and necessity do not require facilitation of

more fossil fuel transportation and consumption to the detriment of the public within Illinois

and far beyond.

D. Burden of Proof In addition to considering which statutory provisions apply, it is also important to

consider which party in a proceeding has the burden of demonstrating that the standards

set forth in the statutory provisions are met. To obtain the relief they request under

Section 8-503 of the PUA, Joint Petitioners have the burden of demonstrating that their

capacity optimization plan is “necessary and ought reasonably to be made” or that

capacity optimization facilities are “necessary and should be erected, to promote the

security or convenience of its employees or the public … or in any other way to secure

adequate service or facilities.” (§8-503) Joint Petitioners’ burden under Section 8-503

can be narrowed in light of their acknowledgement that their proposal is not necessary

for the security or convenience of their employees (see SOIL-SC Ex. 1.4), leaving the

security and convenience of the public that which Joint Petitioners must prove before the

expansion is authorized. As explained above, Joint Petitioners also have the burden of

demonstrating under Section 15-401 that their Joint Petition was properly filed, a public

need for the capacity optimization plan exists, that they are both fit, willing, and able to

increase crude oil throughput from 570,000 bpd to 1,100,000 bpd in compliance with the

PUA, Commission regulations, and orders, and that the public convenience and necessity

requires issuance of a new or amended Certificate authorizing implementation of the

capacity optimization plan.

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The Commission in its Order in Lakehead recognized that the burden of proof was

on the applicant. (Lakehead, supra, (1997 Ill. PUC LEXIS 255, at 37) (“Lakehead has

failed to meet its burden of proof under Article 15 of the Act.”)) Under Section 10-15 of

the Illinois Administrative Procedure Act, 5 ILCS 100/1-1 et seq., Joint Petitioners must

demonstrate by the preponderance of the evidence that they have met their burden.

Caselaw discussed later in this Initial Brief provides guidance on what has been found to

have satisfied the burden of proof in prior Commission dockets. As will be shown, Joint

Petitioners’ have failed to prove that their capacity optimization plan is necessary or

benefits anyone more than themselves and possibly a handful of shippers eyeing the

crude oil export market.

E. Section 8-101 of the PUA Does Not Create a Legal Obligation for Joint Petitioners to Meet Shipper Demands for Transportation Services

Joint Petitioners maintain that Section 8-101 of the PUA “obligates” them as

common carriers to meet shipper demands for transportation services. (Joint Petition, ¶

17) Section 15-101 makes Section 8-101 applicable to common carriers. Section 8-101

states in full:

A public utility shall furnish, provide, and maintain such service instrumentalities, equipment, and facilities as shall promote the safety, health, comfort, and convenience of its patrons, employees, and public and as shall be in all respects adequate, efficient, just, and reasonable.

All rules and regulations made by a public utility affecting or pertaining to its charges or service to the public shall be just and reasonable.

A public utility shall, upon reasonable notice, furnish to all persons who may apply therefor and be reasonably entitled thereto, suitable facilities and service, without discrimination and without delay.

Nothing in this Section shall be construed to prevent a public utility from accepting payment electronically or by the use of a customer-preferred financially accredited credit or debit methodology.

SOIL-SC-WK agree that Section 8-101 is applicable to Joint Petitioners’ request,

21

but not in the manner Joint Petitioners suggest. SOIL-SC-WK are not aware of any

situation in which the Commission has applied Section 8-101 to conclude that a common

carrier must increase capacity to satisfy shipper demand, particularly when determination

of such demand is subject to the Commission’s finding of necessity following an

evidentiary hearing pursuant to Sections 8-503 and 15-401.

Joint Petitioners voluntarily initiated an open season on October 19, 2018 offering

to provide additional capacity on their pipelines. (Confidential SOIL-SC Cross Ex. 8, at

1) Joint Petitioners had no obligation to initiate this or any other open season. Moreover,

the six transportation service agreements (“TSA”) Joint Petitioners entered into at the

conclusion of the 2018 open season recognize that implementation of the capacity

optimization plan is contingent upon receiving regulatory approval. (Id. At 10) The 2004

case of Orland Hills v. Citizens Utils. Co., 347 Ill. App. 3d 504, 524, 282 Ill. Dec. 966, 981,

807 N.E.2d 590, 605, supports the position that there is no absolute obligation to serve

under Section 8-101 of the PUA. Moreover, Joint Petitioners’ claim that they are obligated

by law to serve shippers is belied by the testimony of their witness, Dr. Jeff Makholm, that

“Regulators let the market support those investments [like the capacity optimization plan],

given the fact that the ‘private profitability calculations’ are adequate to judge their

desirability as additions to the transport market.” (Dakota Access-ETCO Ex. 6.2, lines

480-482) In other words, Joint Petitioners wish to expand their transportation capacity

because they believe that there is profit to be gained, not because Section 8-101 obligates

them to do so. In any case, whether or not a need to provide the requested service exists

remains for the Commission to decide under Sections 8-503 and 15-401.

Section 8-101 does not obligate Joint Petitioners to serve any shipper that

22

approaches them. Instead, this section obligates Joint Petitioners to “furnish, provide,

and maintain such service instrumentalities, equipment, and facilities as shall promote

the safety, health, comfort, and convenience of … [the] public and as shall be in all

respects adequate, efficient, just, and reasonable” should the proposed improvements be

approved by the Commission and constructed by Joint Petitioners. As will be explained

further below, there is insufficient evidence in the record to conclude that Joint Petitioners’

capacity optimization plan will promote public safety, health, comfort, or convenience with

regard to meeting public demand for energy or avoiding the risk of catastrophic climate

change.

F. Interstate Commerce Act Does Not Require that Joint Petitioners Expand Capacity to Meet Customer Demand

Without providing a cite, Joint Petitioners assert that federal law obligates them as

common carriers to meet customer demands for transportation services. (Joint Petition,

¶ 17) SOIL-SC-WK presume that Joint Petitioners are relying on the Interstate Commerce

Act (“ICA”) for this proposition. Notably, however, the ICA does not impose an obligation

to serve any and all shipper requests for service, as suggested by Joint Petitioners. Prior

to her appointment to the U.S. Supreme Court, Circuit Judge Ruth Ginsburg addressed

a common carrier’s obligation to serve demands by shippers in B.J. Alan Co. v. ICC, 283

U.S. App. D.C. 107 (1990). In evaluating whether United Parcel Service had an obligation

under the ICA as a common carrier to serve a category of shippers, Judge Ginsburg

wrote:

A common carrier undertakes to provide transportation service "on reasonable request," 49 U.S.C. § 11101(a), and "may not subject a person, place, port, or type of traffic to unreasonable discrimination." 49 U.S.C. § 10741(b). Subject to those strictures, however, "a common carrier is free to carve out as large or as small a [niche] as it feels appropriate." Steere Tank

23

Lines, Inc. v. ICC, 675 F.2d 103, 105 (5th Cir. 1982). An unlimited duty of carriage was never the rule. (B.J. Alan Co. v. ICC, 283 U.S. App. D.C. 107, 897 F.2d 561, 563) (emphasis added)

More recently, the Federal Energy Regulatory Commission (“FERC”) has come to

similar conclusions regarding pipeline companies’ service obligations as common

carriers. In the context of an obligation to interconnect with another pipeline in Plantation

Pipe Line Company v Colonial Pipeline Company, FERC concluded that because it

lacked authority over abandonment of service by oil pipelines, “it would be illogical and

inconsistent for [FERC] to conclude here that it has the power to compel an

interconnection that Colonial does not want and could abandon.” (104 FERC ¶ 61,271,

para 28, (2003))

In a subsequent FERC matter also involving an alleged obligation to interconnect

under the ICA, FERC determined, “Just as a pipeline is not required to provide a particular

service, a pipeline may also discontinue a service it previously provided at any time. (High

Prairie Pipeline LLC v Enbridge Energy, LP, 149 FERC ¶ 61,004, ¶ 14 (2014)) In the

same order, FERC also stated, “Yet the mere fact that a pipeline explores whether it can

come to agreement on offering a service in the future does not actually bind that pipeline

to offering that service.” (Id., ¶ 17)

In addition, Joint Petitioners’ claim that federal law obligates them to serve

shippers seeking transportation service is incompatible with provisions in their own TSAs

resulting from their 2018 open season. As will be discussed further below, Section 7(b)

of the 2018 TSAs provides,

***CONFIDENTIAL XXXXXXXXXXXXXXXXXXXXXXXXXX xxxxxxXXxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxXXxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

24

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx. CONFIDENTIAL*** (Confidential SOIL-SC Cross Ex. 8, at 24)

Notably, this section does not obligate Joint Petitioners to offer service under different

terms. If in fact federal law obligated Joint Petitioners to serve shippers seeking

transportation service, the quoted language from the 2018 TSAs would conflict with such

federal law, as well the previously discussed Section 8-101 of the PUA, since some

shipper(s) could still want to transport up to 39% of the total available capacity.

Accordingly, Joint Petitioners’ claim that federal law, and Illinois law, obligates them to

provide transportation service is not in accordance with the law and should be

disregarded by the Commission.4

IV. PUBLIC NEED Arguably the most important hurdle for Joint Petitioners to overcome in this docket

is demonstrating public need. As this proceeding neared the evidentiary hearing phase,

and as the Commission is well aware, a global pandemic impacted the world economy,

which included the oil industry. Demand for oil around the globe plummeted, benchmark

crude prices dropped to never before seen lows, oil producers across the United States

cut capital expenditures and shut in wells, and experts predict a prolonged downturn in

the U.S. oil industry. Unfortunately, the record in this matter does not reflect this extreme

and unprecedented situation that directly impacts the need for the additional throughput

capacity Joint Petitioners propose to implement. SOIL-SC-WK urge the Commission to

take judicial notice of the pandemic and impact on the oil industry pursuant to Section

200.640 of the Rules of the Practice and Rule 201 of the Illinois Rules of Evidence. As

4 The conflict between Joint Petitioners claim that they have an obligation to serve all shippers and the subsequent revelation of the quoted language from the TSA is one example of many indicative of why SOIL-SC-WK have learned to question many of Joint Petitioners’ self-serving assertions in this docket.

25

stated in People v. Ross, “the court could take cognizance of whatever may be known by

common observation, since the court is presumed to be as well informed as the general

public and can certainly take judicial notice of that which everyone knows to be true.” (82

Ill. App. 3d 158, 160 (1980)) The COVID-19 pandemic and its impact on the global

economy in general and the oil industry in particular are facts which everyone knows to

be true.

A. Commission’s Determination of Need in Other Common Carrier by Pipeline Dockets

1. Lakehead

The Commission’s Order in Lakehead 23 years ago (affirmed by the appellate

court) remains a leading, oft-cited5 decision for several purposes, but most importantly on

the issue of public need. “This [public need] is the most contested issue in this proceeding.

It is of overreaching importance that there be a showing of public need because it forms

a condition precedent for any determination of necessity and, therefore, convenience.”

(Lakehead, supra, (1997 Ill. PUC LEXIS 255, at *11, 12) Lakehead sought Commission

approval to construct and operate a pipeline for the transportation of crude oil and other

liquid hydrocarbons. The pipeline would be an addition to a 3,200 mile long pipeline

system that extends from Western Canada, entering United States in North Dakota, with

pipelines routed through the north central U.S., including Illinois, and re-enters Canada

near Ontario. It extended from Wisconsin to Indiana, extending over 115 miles through

northeastern Illinois. It was placed in service in 1968-1969, and delivered crude to

refineries in Illinois and elsewhere. Lakehead contended it had to apportion capacity due

5 See e.g., Enbridge Pipelines (Illinois) L.L.C., ICC Docket No. 07-0446 (Order, July 8, 2009)

26

to physical limitations on its pipeline system. Lakehead sought a Certificate to construct

a new pipeline from Wisconsin to Illinois and interconnect with an existing line in Illinois.

The Commission stated in its Order that “the public need, like the public convenience and

necessity, ‘required to support an order of the Commission is that of the public and not of

any individual or number of individuals.’“ (Id., at *34, quoting Roy v. Illinois Commerce

Comm’n, 322 Ill. 452, 458 (1926)) Continuing in its distinguishing the public need from a

private need or desire, the Commission stated, “The public, as indicated by the [Roy]

court, is greater than a limited number of market players. While it may be in Lakehead’s

own best interest that the proposed pipeline be built, that does not establish a public

need.” (Lakehead, 1997 Ill. PUC LEXIS, at *34). To emphasize this principle further, the

Commission explained, “Whatever basis a petitioner chooses for demonstrating a public

need, the need must be for the public, not for the few.” (Id., at *35) When the issue is

contested, the Commission stated that all evidence is to be considered. “And the

Commission must weigh the evidence presented by the petitioner, that there exists a

public need against the evidence other parties presented that no such public need exists.”

(Id., at *35, 36)

The Commission in Lakehead considered the possibility that Lakehead may seek

eminent domain authority as making the public need determination even more important.

While an affirmative decision would not grant Lakehead eminent domain, the Commission’s granting of a certificate in good standing does indicate a public need and as such eminent domain may be appropriate to fill that public need. That is why the Commission’s ruling in this proceeding must be based upon a demonstrated public need, rather than private interests. (Id., at *36)

In further analyzing the public need requirement, the Commission stated that it

agreed with Staff that the demand for refined petroleum products, and not only crude oil,

27

provides the basis for public need. (Id., at *37) Staff had criticized the testimony of

Lakehead witnesses who represented oil companies that owned refineries along

Lakehead’s pipeline system. It was Staff’s position that none of the witnesses

demonstrated that their refineries needed to obtain additional Canadian crude oil via

Lakehead’s pipeline system. None of them, according to Staff, provided support needed

to show a public need for the proposed pipeline. (Id., at *24, 25)

The Commission also addressed the public convenience and necessity standard

as it relates to public need in its Lakehead Order. “Public convenience and necessity and

public need are not mutually exclusive. If a showing of public need cannot be made for

a proposed pipeline project such as Lakehead’s, the public convenience and necessity is

not being served.” (Id., at *38) The Commission in effect established a showing of public

need as a prerequisite to or required component of, public convenience and necessity.

As part of additional discussion and support for its conclusions, the Commission

expounded further on the public vs. private need relationship. The Commission found it

difficult to reconcile the need of Lakehead and three of its customers with the public need.

The Commission stated that if it were to accept that the public need can be equated with

the need of a group of individuals like those in Lakehead, “the role of the Commission

under Article 15 would be merely to recognize that a private interest is fit, willing and able

to build a pipeline and its customers want the product of that pipeline.” (Id., at *56) The

Commission added that Lakehead did no analysis, economic or engineering, as to the

relevant supply sources for the market. Lakehead “simply stated that demand is growing

and it wanted to supply that demand.” (Id., at *56, 57) Lakehead offered no evidence,

only speculation, that future demand necessitated a new pipeline. Staff attempted to

28

conduct such an analysis and could not find support that a new pipeline was needed in

the relevant market to meet any alleged shortfalls in pipeline capacity. Further,

Lakehead’s own refinery-representative witnesses could not identify any current or future

capacity constraints other than on Lakehead’s system.

The Commission then addressed why a pipeline company would invest a large

sum of money on a new pipeline where there was no analysis that the pipeline was

needed to meet any alleged future capacity shortfalls. As the Commission posited, “One

possible explanation is the conquest of market share. While obtaining market share may

be beneficial to the Company, it is not a public need, it is a private goal.” (Id., at *57)

2. Dockets after Lakehead

Several common carrier by pipeline certification dockets have been considered by

the Commission since Lakehead. Summaries of those dockets, focusing on the related

issues of public need and public convenience and necessity follow.

In Docket No. 06-0458, a common carrier pipeline sought a Section 15-401

Certificate to construct and operate a pipeline to carry crude oil from western Canada to

refineries in Illinois and the surrounding region. The record showed that pipelines serving

southern Illinois were fully utilized and on apportionment. Western Canadian crude was

cheaper and more secure than crude from other sources, such as imports from the Gulf

and other countries. The Wood River refinery in Illinois, near St. Louis, had committed to

shipments on the proposed pipeline, and commitments totaling 78% of the pipeline’s

capacity had been made. That refinery supplied refined petroleum products to the public

in Illinois, and it planned to expand the refinery capacity. Staff supported the petitioner’s

request and no intervenors contended that the Section 15-401 requirements were not

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met. The Commission granted a Certificate after finding that a public need existed and

the public convenience and necessity required issuance of a Certificate. TransCanada

Keystone Pipeline, LP, ICC Docket No. 06-0458 (Order, April 4, 2007) (Second

Amendatory Order on Reopening, July 16, 2008).

In Docket No. 05-0343, a pipeline by common carrier of refined petroleum products

applied for a Section 15-401 Certificate for existing pipelines in Illinois that the petitioner

had acquired from another company. The pipelines had three delivery points to

customers located in central Illinois. The Commission found the existence of a public

need, as shippers used the pipeline to ship products to local areas where they are used

by the public, and are the only pipelines to serve certain areas of the State. Norco Pipe

Line Co., LLC, ICC Docket No. 05-0343 (Order, September 14, 2005).

In Docket No. 05-0344, the petitioner sought a Section 15-401 Certificate, as a

successor owner, for a pipeline transporting refined petroleum products. The pipeline had

four major branches, one of which originated at an Illinois refinery, extending to a terminal

in Illinois, and then to another Illinois location. Part of the line went to a northwest Indiana

terminal. Another pipeline section extended to a terminal in Chicago, continuing to a Shell

Oil terminal in the suburbs. From there, it delivered jet fuel to O’Hare Airport. Another

pipeline extended from the Wood River Refinery to another Illinois terminal, continuing on

to Indiana and Ohio. Another pipeline extended from Illinois into an Indiana terminal, and

a section of it extended and interconnected with a refinery at Robinson, Illinois. Another

pipeline delivered products from the Wood River Refinery to St. Louis terminals. Over 34

million barrels of products were shipped in the prior year to Illinois destinations. The

Commission found a continuing public need for the Wood River pipelines, used by

30

different shippers to transport products to local areas where they were used by the public.

The pipeline was a major shipper for products of the ConocoPhillips refinery in Wood

River, Illinois, and a significant supplier of jet fuel to O’Hare Airport. The pipelines also

were found to serve the public convenience and necessity, as the efficient transport of

products by the pipeline was found to be superior to other transport methods. Wood River

Pipe Lines, LLC, ICC Docket No. 05-0344 (Order, September 14, 2005).

In Docket No. 06-0470, Enbridge petitioned for a Section 15-401 Certificate, along

with requests for approvals under Sections 8-503 and 8-509, for its Southern Access

Expansion Program, which included two new liquids pipelines in Illinois. One would

transport crude oil through Wisconsin to a storage facility near Pontiac, Illinois. The

second pipeline, the Southern Lights Project, was to transport liquid hydrocarbons

(“diluents”) from Illinois-area refineries and other sources through other pipelines to

northern Alberta. From Pontiac (Enbridge’s Flanagan Terminal), crude oil would be

transported to Chicago and to Cushing, Oklahoma. The petitioner offered supporting

testimony of three witnesses representing the crude oil and refining market sector. Cross-

examination of all witnesses was waived, and no briefs were filed. The Commission

issued the Certificate and approvals as requested. Enbridge Energy Partners, L.P. and

Enbridge Energy, Ltd. P’ship, ICC Docket No. 06-0470 (Order, April 4, 2007) (Order on

Reopening, August 6, 2013).

In Docket No. 07-0446, Enbridge applied for a Section 15-401 Certificate, and

orders under Sections 8-503 and 8-509, to construct, operate and maintain a 170-mile

long crude oil pipeline in Illinois, from Pontiac to Patoka. Enbridge encountered

opposition from a number of intervenors. In its Order, the Commission noted that several

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parties discussed the Lakehead Order and the appellate court’s decision affirming the

Commission’s Order. The Commission noted the difficulty in determining whether there

was a public need for the pipeline especially given that the statute does not provide a

definition. (Enbridge Pipelines (Illinois) L.L.C., ICC Docket No. 07-0446 (Order at 46, July

8, 2009), aff’d sub nom., Pliura Intervenors v. Ill. Commerce Comm’n, 405 Ill. App. 3d 199

(2010)). Acknowledging that the two polar positions on the issue both have merit, the

Commission endorsed “the broader approach to the public need determination as

proposed by Staff.” (Id.) The Order cited Staff’s suggestion that bringing Canadian crude

to the Patoka hub would provide Illinois, and the nation, with additional crude oil supplies

from a friendly and reliable country. (Id.) Staff stated that several refinery expansion

projects were underway or being contemplated in the Midwest that would increase the

demand for Canadian crude; those refineries could obtain crude directly from the

proposed pipeline, or via the Patoka hub. Staff believed that not all of the oil needed to

remain in the PADD II region, and that even if some oil was shipped to the Gulf Coast or

other regions, it would benefit the refinery industry and thus the nation. (Order, at 40). Oil

going to Gulf Coast refiners could free up alternative local sources of crude and make

them available to the PADD II region. (Id.) Staff took the view that the Commission should

consider local, regional, and national benefits in determining the impact on the public, and

that in doing so Illinoisans would benefit. (Order, at 41). Staff contended that factors such

as $4 gasoline prices, Gulf Coast hurricanes, the September 11 attacks and resulting

Middle East wars, along with the growing demand for oil by China and other developing

countries, serve to make more reliable crude oil supplies more important. Staff pointed

to economic benefit analyses provided by Enbridge that supported a finding of public

32

need. (Order, at 42). Staff also cited Enbridge testimony that prices for gasoline and other

refined products to Illinois consumers would be lower with the pipeline than they would

be without it.

The Commission’s Order in Docket No. 07-0446 was entered on July 8, 2009, and

was upheld on appeal. In May 2014, Enbridge filed a motion to reopen and amend the

2009 Order to authorize a smaller diameter pipeline (24 inches instead of 36 inches) than

the one referenced in the Certificate the Commission granted in the original proceeding.

Enbridge stated that the change in pipe size was due to a change in economic conditions

causing shippers to desire a different type of crude oil, making a smaller diameter pipe

more appropriate. Multiple landowners intervened in the reopened docket. One of the

arguments in opposition advanced by the landowners was that the pipeline was effectively

a private pipeline as a result of a single shipper (Marathon Petroleum Co.) having

committed to approximately two-thirds of the pipeline’s capacity. The Commission noted

that Enbridge was actively seeking commitments from other shippers, while also

reserving 10% of the capacity for uncommitted volumes. The Commission found that the

pipeline qualifies as common carriage despite Marathon’s large capacity commitment,

and again concluded that a public need existed. (Illinois Extension Pipeline Co., Ill.

Commerce Comm’n, Docket No. 07-0446 (Order on Reopening, December 17, 2014))

In Docket No. 12-0347, Enbridge sought a Section 15-401 Certificate, along with

orders under Sections 8-503 and 8-509, for its Flanagan South Pipeline Project, a new

168-mile long crude oil pipeline that would run from its Flanagan Terminal near Pontiac

to the Illinois/Missouri border near Quincy. The pipeline would be part of a larger pipeline

originating in Illinois and terminating at Cushing, Oklahoma. In granting the Certificate

33

and other requested approvals (Enbridge Pipelines (FSP) L.L.C., ICC Docket No. 12-

0347 (Order, February 14, 2013) (Amendatory Order, June 5, 2013)), the Commission

relied on several factors supporting a finding of public need. Multiple shippers had

contracted for over 500,000 bpd of capacity, the pipeline would help remove the

bottleneck in getting supply to the North American market, and it would help serve the

needs of the general public in Illinois and the country for crude oil products. (Order, at

29). Staff also contended that the pipeline, bringing Canadian crude to the Gulf Coast

refining region, should help lower the country’s dependence, and dependence of Gulf

Coast refineries, on foreign oil. (Order, at 28-29).

In Docket No. 13-0134, Enbridge applied for a Section 15-401 Certificate, and

orders under Sections 8-503 and 8-509, to construct, operate and maintain its Line 78, a

77-mile long crude oil pipeline. The pipeline would run from Enbridge’s Flanagan

Terminal near Pontiac, Illinois to Lake County, Indiana. The application stated that the

initial capacity would average about 570,000 bpd, but would have an ultimate capacity of

800,000 bpd. In granting the requested certification and other approvals (Enbridge

Energy Ltd. P’ship., ICC Docket No. 13-0134 (Order, April 29, 2014)), the Commission

pointed to an agreement between Enbridge and Marathon Petroleum by which Marathon

committed to capacity on the pipeline to help serve Marathon’s Detroit refinery. (Order, at

39) A BP refinery in Whiting, Indiana also was seeking more Canadian crude, which

would be transported by the proposed pipeline, for its increased refining capacity. (Order,

at 40). Demand for transportation by Enbridge’s customers had exceeded the capacity

of another Enbridge line and other pipelines in the Chicago region that deliver crude oil

to Enbridge terminals in Indiana and beyond (Id.) The record showed that the pipeline

34

would help enable more crude to be transported to several additional refineries in Ohio,

Pennsylvania, and Ontario. (Order, at 20)

In all of the dockets discussed above in which the Commission granted the

requested relief, evidence existed that (1) Illinois and area refineries needed and planned

to utilize the crude from the proposed pipeline source either directly or through area

terminals; (2) the crude would be delivered to Illinois storage facilities and petroleum

products would be transported from Illinois refineries to other destinations; (3) the pipeline

would provide crude transportation from an Illinois terminal and relieve an existing

pipeline bottleneck; or (4) other customers in Illinois used or would receive and utilize the

transported products. Additionally, in contrast to the pending docket, Staff took an active

role in evaluating the proposals in the referenced dockets. Recognizable benefits to the

citizenry of Illinois and the nation were also apparent. In none of the dockets did the

Commission find exports to be in the public interest.

B. Joint Petitioners Reliance on Short-Term Production Forecasts Is Not Sufficient to Meet Its Burden of Proof for a Public Need

Like any pipeline of the scope and scale of those at issue in the pending docket,

the anticipated lifespan of Joint Petitioners’ pipelines is several decades into the future,

even the ETCO Pipeline which is already 60 years old. Similarly, the pump station and

other facilities proposed for the capacity optimization plan also have a lifespan of several

decades if constructed. In support of the need for the proposed facilities, Joint Petitioners

repeatedly reference recent increases in crude oil production from the Williston Basin

production area. (see, for example, Dakota Access-ETCO Ex. 1.0, lines 143-158; Dakota

Access-ETCO Ex. 1.2, lines 50-58; and Dakota Access-ETCO Ex. 5.0, lines 121-126) In

light of the anticipated lifespan of the proposed facilities, it is natural and reasonable to

35

consider the long-term production forecast for the Williston Basin production area to

evaluate the long-term public need for the proposed facilities. Oddly, however, Joint

Petitioners have not done so.

Rather than consider Williston Basin production forecasts that match the lifespan

of the proposed new facilities, Joint Petitioners have inexplicably relied on forecasts that

extend only to 2023. Joint Petitioners’ witness Glenn Emery identified four sources of

production forecasts for the Bakken-Williston Basin region relied on by Joint Petitioners:

U.S. Energy Information Administration (“EIA”), North Dakota Industrial Commission

(“NDIC”), Enverus (previously known as Drillinginfo), and Wells Fargo Bank, N.A. (Dakota

Access-ETCO Ex. 1.6, lines 160-166) Confidential SOIL-SC Cross Ex. 5 reflects

production levels and forecasts as of August 2019 by the four sources from the period of

January 2017 through December 2023. Mr. Emery discusses each production projection

as of December 2023 but provides no forecasts beyond that point in time. (Dakota

Access-ETCO 1.6, lines 206-219) Joint Petitioners’ witness Laura Olive offered a fifth

production forecast from the NDIC that extends beyond 2023 (Dakota Access-ETCO Ex.

5.0, line 125-126, footnote 11), but the document that she relies upon clearly states,

“Production forecast is for visual demonstration purpose only and should not be

considered accurate for any near or long term planning.” (SOIL-SC Cross Ex. 14, at 2)

Thus, by its own terms, Dr. Olive’s document cannot be relied upon. Moreover, according

to the Joint Petition, the anticipated in-service date for the Hancock County pump station

is no later than the first quarter of 2021.6 (Joint Petition, ¶ 23) Thus, Joint Petitioners are

asking the Commission to sanction a project that is supposedly needed for decades

6 The Joint Petition does not identify the in-service dates for the proposed facilities at Patoka and Joppa, Illinois.

36

based on two years of third-party data. By any standard, such evidence is insufficient to

meet Joint Petitioners’ burden to prove a public need, and any approval based on this

limited evidence would be arbitrary and capricious.

Independent of the length of the forecasts relied upon by Joint Petitioners is the

question of whether the forecasts warrant reliance. SOIL-SC-WK do not suggest that any

of the four sources of data are intentionally misrepresentative, but rather that additional

information warrants consideration. In particular, the Commission should consider crude

oil demand forecasts, because public need (demand) for petroleum fuels is critical to

determining whether the project serves “the security or convenience of . . . the public,”

Section 8-503, and in determining whether or not “a public need for the service exists.”

Section 15-401 (emphasis added). As can be seen from confidential SOIL-SC Cross Ex.

5, the EIA production forecast is consistently the highest. But as SOIL-SC witness

Richard Stuckey explains, EIA forecasts are based on current regulatory requirements.

As such, any curtailment of crude oil demand due to climate change mitigation efforts and

changes in consumer consumption patterns, such as the trend toward electric vehicles,

are not reflected in the EIA’s crude oil production forecast. (SOIL-SC Ex. 4.0, lines 669-

672) Nor does the record reflect any consideration by Joint Petitioners of declines in

fossil fuel use related to climate change mitigation efforts. Dr. Olive acknowledges that

she did not perform an analysis of how efforts to mitigate climate change may impact

demand for fossil fuels. (SOIL-SC Cross Ex. 14, at 1) So Bakken production may not

reach forecasted production levels, whatever they may be in the long-term, if anticipated

demand fails to develop as reliance on fossil fuels declines.

37

SOIL-SC witness David Hughes offers another reason why the production

forecasts relied on by Joint Petitioners do not meet Joint Petitioners’ burden of proof. He

points out that EIA forecasts, to be accurate, require production of more oil than the

aggregate of EIA estimates of proven reserves plus unproven resources. (SOIL-SC Ex.

8.0, lines 99-101) Because one cannot produce more oil than is technically and

economically recoverable, production is likely to be much lower than the EIA forecast.

(Id., lines 103-105) Mr. Hughes also observed that in 2013, the United States Geological

Survey (“USGS”) estimated undiscovered technically recoverable resources in the

Bakken/Williston Basin at a mean of 7.4 billion barrels, compared to the EIA estimate of

unproven resources of 16 billion barrels. (Id., lines 108-111) As shown in the following

chart from SOIL-SC Ex. 8.5, application of USGS data to the EIA 2019 Annual Energy

Outlook indicates that Bakken production will peak in 2021 and remain on a rough plateau

through 2031, after which it will decline to zero over two decades. (Id., lines 119-121)

38

Mr. Hughes notes as well that neither the EIA estimates of unproven resources in the

Bakken/Williston Basin, nor the USGS estimates of undiscovered resources, considered

economics, meaning neither considered whether sufficient demand for crude oil will exist

to make extraction of the oil financially viable. Therefore, neither the EIA production

forecast nor the USGS estimates provide any assurance that the public will demand more

North Dakota crude oil, even if it is technically possible to extract it from the ground. For

this reason, even the production outlook in SOIL-SC Ex. 8.5 is likely optimistic and does

not imply that there will be a public need for the Project. (Id., lines 134-138)

The importance of considering economics in production and demand forecasts is

all the more important in light of the impact the emergence of COVID-19 has had on global

oil markets. The EIA production forecast relied upon by Joint Petitioners certainly does

39

not reflect COVID-19’s impact on the global oil industry, let alone the Bakken region. (Tr.

at 693) Nor does the above chart provided by Mr. Hughes reflect COVID-19’s impact.

Although Staff cites increased crude oil production in the Williston Basin production

area as one reason why it does not object to Joint Petitioners’ capacity optimization plan

(Staff Ex. 1.0, lines 147-149), SOIL-SC-WK respectfully submit that Staff’s position should

not be given much, if any, weight. The source of Staff witness Brett Seagle’s information

concerning increased production in the Williston Basin is the testimony of Joint

Petitioners’ witness Glenn Emery. Mr. Seagle acknowledged during cross examination

that he relied solely on information provided by Joint Petitioners in coming to his

conclusions. (Tr. at 773-774) As mentioned elsewhere in this Initial Brief, there is no

evidence that Staff did anything more than rely on Joint Petitioners’ assertions. There is

no evidence that Staff questioned any response from Joint Petitioners. There is no

evidence that Staff conducted any independent analysis. There is no evidence that Staff

considered any position other than Joint Petitioners’. With all due respect to Staff, such

a review falls far short of the mission statement reflected on the Commission’s website,

which provides in relevant part: “The ICC's mission is to balance the interests of

consumers and utilities to ensure adequate, efficient, reliable, safe and least-cost public

utility services, while promoting the development of an effectively competitive energy

supplier market.”

For the foregoing reasons, the unreasonably short Bakken region production

forecasts relied on by Joint Petitioners offer insufficient evidence of public need for

additional crude oil pipeline take-away capacity from North Dakota. Notably, no

producers have intervened in this case to support Joint Petitioners’ argument that

40

Williston Basin production warrants additional pipeline capacity. Joint Petitioners’

reliance on only three-year long incomplete, overly optimistic production forecasts that

fail to account for rapidly growing electric vehicle use, fail to consider climate change

mitigation efforts, fail to consider critical USGS data, and completely disregard the

economics underlying extraction does not justify a project with a multi-decade lifespan.7

The shortcomings in Joint Petitioners’ production forecasts fail to move them any closer

to meeting their burden to demonstrate that their project is necessary for the security or

convenience of the public under Section 8-503 or that there is a public need for the plan

or that the public convenience and necessity requires its implementation under Section

15-401.

C. Joint Petitioners’ Reliance on TSA Contractual Commitments Is Insufficient to Meet Its Burden of Proof

Joint Petitioners rely primarily on the TSAs executed in response to their 2018

open season to meet their burden of proof under Sections 8-503 and 15-401. The total

commitment to new pipeline capacity made in these contracts total ***CONFIDENTIAL

SSSSSSSSCONFIDENTIAL*** (DA-ETCO Ex. 1.6, lines 64-66) SOIL-SC-WK assert

that both the amount of this commitment and the terms of the TSAs demonstrate that

Joint Petitioners have not met their burden of proof.

SOIL-SC-WK note that the total commitment made in the TSAs amounts

***CONFIDENTIAL XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

XXXXXXXXXXXXXXXXXXXXXXXXXXXXX CONFIDENTIAL *** Joint Petitioners also

rely on the potential for a more recent open season that began in July of 2019 to fill

7 The failure of the record to reflect the impact of COVID-19 on the global oil industry alone renders the production forecasts in the record unreliable.

41

additional capacity. However, nine months have passed since the start of this 2019 open

season and Joint Petitioners still have not announced any successful additional capacity

commitments based on it. Instead, Joint Petitioners claim that this open season has been

extended indefinitely. (Tr. at 392) SOIL-SC-WK assert that the Commission should find

that the 2019 open season has failed to produce any additional capacity commitments,

and given current commercial circumstances, it should also find that the 2019 open

season has failed in its entirety, despite Joint Petitioners’ failure to admit to the obvious.

This contracting failure reflects the degree to which oil markets have changed since 2018.

It also means that, at best, the current and foreseeable contractual commitments

supporting the project ***CONFIDENTIAL XXXXXXXXXXXXXXXXXXXXX

CONFIDENTIAL *** Given current market conditions, it is not reasonable to expect

additional capacity commitments for the foreseeable future. SOIL-SC-WK assert that the

existing contractual commitment is insufficient to meet Joint Petitioners’ burden of proof

to show a public need for the capacity optimization plan.8

The Commission should not give undue weight to commercial judgments made by

shippers nearly two years ago, the apparent failure of Joint Petitioners’ 2019 open

season, and subsequent oil market developments. Given these factors, the Commission

should not treat the existence of TSA’s as prima facie evidence of public need. Joint

Petitioners’ contracted shippers have no powers to see the future and are fully capable

of making mistakes in their contracting decisions. Also, more recent market evidence

proves that the shippers’ commercial judgment was in error. Therefore, the Commission

is not bound by the outdated judgments underlying the 2018 TSAs. Therefore, the

8 The impact of the COVID-19 pandemic on both existing shippers and, to the extent different, expansion shippers is unknown.

42

evidence in the record indicates that the Commission should determine that the 2018

TSAs do not by themselves justify expansion of the pipelines, particularly given the risks

that expansion imposes on Illinois.

The terms in the TSAs themselves demonstrate that Joint Petitioners are aware

that the TSAs are not set in stone, but rather must account for future market changes. In

particular, ***CONFIDENTIAL xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

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• sssssssssssssssssssssssssssssssssssssssssssssss

• ssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssss ssssssssssssssss

• ssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssss sssssss






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CONFIDENTIAL***

Accordingly, SOIL-SC-WK assert that the Commission should not give undue

weight to the existence of TSAs, because the total amount of the commitment is not

relatively high and for practical purposes they are contingent on future market conditions.

D. Existing Take-Away Capacity from North Dakota Is Sufficient to Transport Forecasted and Contracted Volumes

Joint Petitioners’ inadequate crude oil production forecasts should be considered

in light of existing capacity by other carriers to transport any near-term increase in North

Dakota crude production that might materialize. The Commission previously recognized

the propriety of doing so in its aforementioned Lakehead Order. In that Order, the

Commission criticized Lakehead for failing “to consider the relevance of any crude oil and

45

refined petroleum product pipeline systems other than its own in arriving at its conclusion

that a public need for its proposed pipeline project existed.” (1997 Ill. PUC LEXIS 255,

*37) In the docket at hand, Joint Petitioners offered no analysis or other evidence that

existing take-away capacity from the Bakken region is insufficient. In fact, public

information demonstrates that the opposite is true.

SOIL-SC Exs. 8.2 and 8.3 show that existing pipelines and railroads have more

than enough capacity to transport the modest if optimistic short-term production forecasts

provided by Joint Petitioners. FERC data presented by SOIL-SC witness David Hughes

shows that unused capacity on existing pipelines amounted to 297,935 bpd as of the

second quarter of 2019. (SOIL-SC Ex. 8.2, lines 69-70) He also presented evidence that

unused railroad takeaway capacity totaled 1,042,422 bpd. (SOIL-SC Ex. 8.2, lines 74-75)

In contrast, Joint Petitioners claim that North Dakota production will increase by 350,000

to 450,000 bpd over the next 5 years. (Dakota Access-ETCO Ex. 1.0, lines 145-150;

Dakota Access-ETCO Ex. 1.6, at 7) Together, unused pipeline and railroad capacity is

more than adequate to meet Joint Petitioners’ near-term production forecast, should it

materialize.

***CONFIDENTIAL xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx


xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxCONFIDENTIAL *** (Dakota Access-

ETCO Ex, 1.6 lines 64-66) The evidence shows that existing pipeline and railroad

capacity is more than adequate to meet possible future demand for takeaway capacity

from North Dakota, particularly given the lack of evidence supporting Joint Petitioners

crude oil production forecasts and the results of the 2018 open season.

46

Joint Petitioners’ witness David Harrison even agrees that existing Bakken take-

away capacity is sufficient to handle the forecasted production Joint Petitioners rely on.

He provides a map in his prepared testimony which he testifies “shows that the

Bakken/Three Forks oil basin is well-connected by railroad to major refining centers.”

(Dakota Access-ETCO Ex. 9.0, lines 184-185) When asked if there is enough capacity

in the existing railroad and pipeline systems to allow the additional crude oil to be

transported by rail or other pipelines if the Joint Petition is denied, he clearly states, “yes.”

(Id., lines 194-197) Referencing the higher of two projections in the same longer-term

NDIC production forecast cited by Dr. Olive (which contains an advisory against relying

on it for near or long term planning), he goes on to state, “this figure indicates that there

is sufficient rail capacity to carry the additional 0.5 million barrels/day of crude projected

in the Joint Petition to be carried on the Dakota Access and ETCO pipelines.” (Id., lines

204-206) (See also Dakota Access-ETCO Ex. 5.0, line 125-126, footnote 11 and SOIL-

SC Cross Ex. 14, at 2) SOIL-SC-WK appreciate Dr. Harrison’s candor in acknowledging

the lack of need due to other transportation options being available.

But despite the testimony of their own witness that sufficient transportation

capacity already exists, Joint Petitioners refuse to acknowledge that fact and point to a

handful of TSAs as all the evidence they need. For example, Joint Petitioners’ witness

Glenn Emery asserts that the existence of its TSA contractual commitments is evidence

that “the other pipelines and the rail capacity that Mr. Hughes . . . refer[s] to do not

transport crude oil to destinations where these shippers want it delivered and/or are not

viewed by the market as long-term, competitive transportation service options.” (Dakota

Access-ETCO Ex. 1.6, lines 37-44) Essentially, he argues that the Commission should

47

ignore Lakehead and find that the potential costs of the expansion to Illinois are justified

not by an absolute need to transport crude oil from North Dakota, but by the shippers’

2018 judgments that the DA-ETCO route better serves their commercial needs as these

were understood in 2018.

Even if supply grows for the few years forecast by Joint Petitioners such that

shippers have oil to transport pursuant to their TSAs, denial of the project would not result

in stranded oil in North Dakota, though it is possible that it might result in non-optimal

routing of crude oil to market. But, it might not. The Commission should not burden the

public with Joint Petitioners’ questionable project when the evidence shows that the North

Dakota oil industry can move even the overly optimistic supply increase forecasts

provided by Joint Petitioners as well as the specific amounts contracted through the 2018

TSAs to market using existing infrastructure.

E. Refineries Are Operating at Capacity And Do Not Need More Crude In an effort to justify nearly doubling the throughput of their pipelines, Joint

Petitioners have commented on the additional crude they seek to transport being

available to refineries in Petroleum Administration for Defense District9 (“PADD”) II and

PADD III. (See, for example, Dakota Access-ETCO Ex. 1.2, lines 69-90, 159-162, and

Dakota Access-ETCO Ex. 5.0, lines 196-210) At the same time, however, in both their

testimony and in response to discovery, Joint Petitioners have insisted that they do not

9 The Petroleum Administration for Defense Districts are geographic aggregations of the 50 States and the District of Columbia into five districts: PADD 1 is the East Coast, PADD 2 the Midwest, PADD 3 the Gulf Coast, PADD 4 the Rocky Mountain Region, and PADD 5 the West Coast. During World War II the Petroleum Administration for War used these five districts to ration gasoline. Although the Administration was abolished after the war in 1946, Congress passed the Defense Production Act of 1950, which created the Petroleum Administration for Defense and used the same five districts, only now called the Petroleum Administration for Defense Districts.

48

know where the oil they transport will end up. (See, for example, Dakota Access-ETCO

Ex. 1.2, line 119-121; Dakota Access-ETCO Ex. 1.2, lines 242-245; SOIL-SC Ex. 1.5 at

1 and 2; SOIL-SC Ex. 1.6; and SOIL-SC Ex. 4.16) Moreover, in response to DRs SOIL

1.016 and 1.017 (SOIL-SC Ex. 1.5), Joint Petitioners asserted that the destination of the

additional volumes of crude oil they seek to transport is irrelevant. To be clear, SOIL-SC-

WK believe that the destination of the crude oil is relevant in determining whether there

is a public need for the capacity optimization plan under Illinois law – a view the

Commission has shared in common carrier pipeline dockets since Lakehead. What is not

clear is how Joint Petitioners can argue that the destination is not relevant but at the same

time suggest, to support a finding of public need, that domestic refineries will make use

of the additional crude oil Joint Petitioners propose to transport. Such statements are

another example of Joint Petitioners offering inconsistent statements that have led SOIL-

SC-WK to question much of what Joint Petitioners have offered in this docket.

But setting aside the inconsistency of Joint Petitioners’ public need argument, it is

important to consider the ability of PADD II and PADD III refineries to accommodate the

additional crude oil Joint Petitioners propose to transport. As an initial matter, there is no

dispute that the vast majority of the crude oil transported by Joint Petitioners is destined

for the Gulf Coast. SOIL-SC witness Richard Stuckey reports that ***CONFIDENTIAL

xxxx CONFIDENTIAL*** of the current capacity (excluding 10% reserved for walk-up

shippers) is diverted at Patoka, Illinois and the remaining current contracted throughput

continues to Nederland, Texas. (SOIL-SC Ex. 4.0, lines 167-171) Of the shipper

commitments made during Joint Petitioners’ 2018 open season for the capacity

expansion, 97.5% of the additional crude oil is to be shipped to Nederland, Texas in PADD

49

III. The remaining 2.5% would apparently leave Joint Petitioners’ pipelines at Patoka,

Illinois in PADD II (SOIL-SC Ex. 1.0, lines 230-233), although it is possible that some of

the crude oil could still find its way to Nederland. Very little of the additional throughput

would even remain in PADD II to be processed by refineries in that district. This means,

assuming the crude oil even remains in the United States, that refineries in PADD III,

particularly in the Gulf Coast region, would be the ones to most likely process the

additional crude oil Joint Petitioners propose to transport.

The likelihood that PADD III refineries, let alone PADD II refineries, can accept the

additional crude is highly questionable. SOIL-SC-WK concur with Joint Petitioners’

witness Laura Olive that refinery utilization rates in PADDs II and III have been

consistently high over the last 30 years. (Dakota Access-ETCO Ex. 5.0, Table 3) High

utilization rates are indicative of refineries having sufficient supplies of crude oil for

processing. While Joint Petitioners argue that high utilization rates suggest that Midwest

and Gulf Coast refiners may be thinking of expanding operations (Dakota Access-ETCO

Ex. 1.6, lines 361-363), they offer limited evidence of that being anything more than

speculation. At best, Dr. Olive provides a press release from ExxonMobil announcing

plans to expand its existing refinery in Beaumont, Texas. (Dakota Access-ETCO Ex. 5.3)

The January 29, 2019 press release, however, clearly indicates that the capacity

expansion will be “supported by the increased crude oil production in the Permian Basin.”

(Id., at 2) The Permian Basin is in west Texas, not North Dakota, so Dr. Olive’s reliance

on the ExxonMobil press release does nothing to support Joint Petitioners’ underlying

contention that refinery expansion will facilitate the processing of the additional North

Dakota Bakken crude they seek to transport. Dr. Olive’s other references to three refinery

50

expansions in 2015 and 2016 offer similarly weak evidence that refineries will expand

capacity in the future to handle additional Bakken crude. (Dakota Access-ETCO Ex. 5.2,

lines 80-85) SOIL-SC-WK do not question that from time to time refineries may change

their operating capacity, but relying on expansions that occurred several years ago to

support the claim that expansions will occur in the future is simply speculation. Her

reliance on PADD II and III refinery expansion to accommodate additional Bakken crude

is particularly speculative given her admission, as noted previously, that she has not

considered how efforts to mitigate climate change may impact demand for fossil fuels.

(SOIL-SC Cross Ex. 14, at 1) She essentially assumes that the fossil fuel industry will

continue to function as it always has despite the global movement away from fossil fuels.

Even if refineries in PADDs II and III were not operating at near 100% capacity,

there is also the question as to whether the refineries could technically accommodate the

type of crude oil extracted from the Williston Basin. The North Dakota crude shipped by

Joint Petitioners is light, sweet crude. But according to the EIA, Gulf Coast refineries are

configured mostly to process heavy, sour crude oils. (SOIL-SC Ex. 1.14, at 1) SOIL-SC-

WK accept that there could be some refineries in the Gulf Coast region that are configured

to process light, sweet crude oils and even those configured to process heavy, sour crude

oils may be able to blend in some quantity of light, sweet crude oils. But analytical firm

IHS Markit reports that “the light crudes, condensates, and natural gas liquids (NGLs)

produced with unconventional development techniques have saturated US markets, but

they are well-suited for growing markets in Asia and elsewhere.” (SOIL-SC Ex. 4.0, lines

380-383) Similarly, Mr. Stuckey notes that RBN Energy LLC reported as recently as

November 6, 2019 that “U.S. refineries are taking about as much domestic crude as they

51

can and so most incremental barrels of light tight oil ought to be exported. As we track in

our Crude Voyager report, the major regions from which crude is exported are Louisiana,

Beaumont (TX), Houston (TX), and, coming on strong recently, Corpus Christi (TX).”10

(Id., lines 383-388) Generalizations by Joint Petitioners that domestic refineries may or

could process additional light, sweet Bakken crude (Dakota Access-ETCO Ex. 1.2, lines

185-194; Dakota Access-ETCO Ex. 4.0, lines 63-64) in a market awash with light, sweet

crude is hardly persuasive evidence that there is a need for Joint Petitioners to transport

additional light, sweet crude through PADD II and into PADD III. In fact, the EIA document

cited by Dr. Olive indicates that Midwest refineries have actually been processing heavier

grades of crude oil.11 (Dakota Access-ETCO Ex. 5.4, at 1)

Despite Joint Petitioners’ disagreement, the pending reversal of the Capline

Pipeline (“Capline”), the largest northbound crude oil pipeline that historically brought

crude oil from the Gulf Coast to the Midwest, also signals that Midwest refineries are

adequately served. (SOIL-SC Ex. 1.0, lines 217-220) If there was still demand for

additional crude oil in the Midwest, Capline would not be reversed. But as it is, the owners

are Capline are working towards reversing the flow so that additional crude can be

transported from Patoka, Illinois to the Gulf Coast. On cross-examination during the

evidentiary hearing, it was noted that the reversed Capline will carry both light and heavy

crudes south to the Gulf Coast. (Tr. at 428) Regardless of where on Capline light crude

is introduced, the fact remains that additional light and heavy crudes would be transported

10 Although the export of the crude transported by Joint Petitioners will be discussed later, it is worth nothing that in this discussion of domestic refinery capacity that the Beaumont area includes Joint Petitioners’ affiliated Nederland facilities. (SOIL-SC Ex. 4.0, lines 388-389) 11 How the pandemic induced loss of demand for refined petroleum products has impacted refinery operations is not reflected in the record.

52

south, away from the Midwest refineries that Joint Petitioners suggest need more light

crude oil. Again, it is not clear how Joint Petitioners can maintain that refineries need the

additional Bakken crude oil that Joint Petitioners propose to transport.

Dr. Olive’s suggestion that global consumption of refined petroleum products

between 2010 and 2018 justify Joint Petitioners’ proposal also lacks merit. As can be

seen from Table 1 of her surrebuttal testimony (Dakota Access-ETCO Ex. 5.2), while

global consumption has risen since 2010, the annual rate of increase is declining. In

other words, according to Dr. Olive’s Table 1, the global growth rate in the consumption

of refined petroleum products is slowing. This observation supports the SOIL-SC-WK

position that Joint Petitioners’ proposed additional throughput is not needed to address a

shortfall in supply for refiners. Moreover, the record lacks any discussion of the impact

of COVID-19 on global oil demand.

Along those lines, it is worth noting that no refiners have intervened in this

proceeding to support the Joint Petition. Joint Petitioners are alone in speculating that

Midwest and Gulf Coast refineries can currently use or will in the future undertake costly

refittings or expansions in order to process the additional light, sweet crude that Joint

Petitioners contend is needed and in the public interest. Nor is there any evidence that

Staff considered the ability of PADD II or PADD III refineries to process light, sweet crude

or whether they could accommodate any additional crude of any grade. In the absence

of any actual evidence, Joint Petitioners’ claim that refineries may process the additional

Bakken crude fails bring them any closer to meeting their burden.

53

F. Additional Crude Volumes Appear Destined for Export SOIL-SC-WK have found no Commission dockets approving a new common

carrier pipeline where most, or even a substantial portion, of the oil to be transported by

the pipeline would be exported to overseas countries and markets. The subject of

possible exports of oil arose and was discussed briefly in one docket of which SOIL-SC-

WK are aware. In Section IV.A.2. of this Initial Brief, SOIL-SC-WK discuss Docket No. 12-

0347, involving a new Enbridge pipeline project. The Commission cited in its Order the

testimony of a witness for the applicant on the subject of crude oil exports from the U.S.

The witness dismissed suggestions that the crude oil to be carried by the proposed

pipeline was intended for export, as having no basis in fact. (Order, at 26).12 Contrary to

the situation in Docket No. 12-0347, the record in the instant proceeding demonstrates a

strong likelihood that substantial, if not most, incremental volumes of crude oil to be

transported with the increased pipeline capacity will be exported out of the Gulf Coast.

In reviewing the Joint Petition and Joint Petitioners’ direct testimony, one logically

infers that the destinations of the additional crude oil volumes that would be enabled by

Joint Petitioners’ proposed capacity expansion would be transported to and refined by

Midwest and Gulf Coast refineries. According to the Joint Petition, “Crude petroleum

transported by the Dakota Access Pipeline can be transferred to other pipelines at Patoka

for shipment to other Midwestern refineries.” (Joint Petition, ¶ 11) Joint Petitioners then

referenced transport to Gulf Coast refineries, stating, “Crude petroleum … can be

transferred to the ETCO Pipeline at Patoka for shipment to Nederland, Texas, and the

12 “It has sometimes been suggested that these types of economic benefits to Illinois may not occur because, the argument goes, the crude oil to be carried by the Flanagan South Pipeline will somehow be ‘diverted’ or intended for export. Mr. Felmy, testifying for Applicant, says that such arguments ‘have no basis in fact.’” (internal citation omitted). Id.

54

Gulf Coast refinery region.” (Id.) Nowhere in the Joint Petition is there any indication that

the incremental crude oil volumes would end up anywhere other than Midwest and Gulf

Coast refineries, and certainly no hint of exporting any of the crude exists. Similarly, Joint

Petitioners’ lead witness Glenn Emery described the refinery regions Joint Petitioners’

pipelines can access in his direct testimony, stating:

Additionally, crude petroleum transported by the Dakota Access Pipeline from the Bakken/Three Forks region to Patoka can be transferred to other pipelines at Patoka for shipment to other Midwestern refineries; and crude petroleum transported to Patoka via other pipelines can be transferred to the ETCO Pipeline at Patoka for shipment to Nederland, Texas, and the Gulf Coast refinery region. (emphasis added) (Dakota Access-ETCO Ex. 1.0 at 4, lines 78-82)

Again, Mr. Emery implies that the proposed capacity expansion is needed to enable

transportation of more crude oil to U.S. refineries for processing, providing no hint of

exportation of any of the incremental crude volumes.

Mr. Emery also reiterated a factor Joint Petitioners have emphasized, that “[t]he

increased demand for crude petroleum transportation services on the Dakota Access and

ETCO Pipelines has been driven primarily by increased crude oil production from the

Williston Basin production area, including the Bakken/Three Forks region.” (Id., lines 143-

145) In other words, according to Joint Petitioners, because the supply of crude oil has

increased, as long as someone is willing to take it from its production area and ship it,

utilizing Joint Petitioners’ pipelines to do so, that should be sufficient to satisfy this

Commission. But that is not sufficient; establishing public need requires more. The

sources of the demand for the oil by those who will refine or otherwise use it, and not

simply those who will ship it, are relevant and material to the determination of need. As

the Commission held in Lakehead, “the general concept of analyzing the appropriate

55

market and other providers in that market, and not just the pipeline itself, should be a

guiding principle in determining public need.” (Lakehead, 1997 PUC LEXIS, at *34)

In his rebuttal testimony (Dakota Access-ETCO Ex. 1.2), Mr. Emery continued to

advance Joint Petitioners’ strong implication that the incremental crude oil would be

shipped to and processed by Midwest and Gulf Coast refineries. In referencing Mr.

Rahbar-Daniels testimony in Docket No. 14-0754, he echoed “that Midwest refineries to

which crude oil delivered by the Dakota Access pipeline from the Bakken region to Patoka

could be delivered (on other pipelines) included four refineries in Illinois (which is all of

the refineries in Illinois), the BP refinery in Whiting, Indiana, and refineries in Lima and

Canton, Ohio.” (Id., lines 72-76) (internal citation omitted) Further echoing Mr. Rahbar-

Daniels, Mr. Emery testified that “the ETCO pipeline would enable supplies of crude oil

from the Bakken region to be transported directly to the substantial Gulf Coast refinery

complex ….” (Id., lines 76-78) If most of the incremental crude oil volumes are destined

for export, rather than to be refined or processed by domestic customers, it is

understandable that Joint Petitioners would not want that fact known. To the knowledge

of SOIL-SC-WK, no common carrier pipeline company has ever been granted a PUA

Section 15-401 Certificate or other approval from this Commission where the product or

products to be transported are destined for overseas foreign markets. As previously

discussed above, in Docket No. 06-0470, Enbridge sought a Certificate for two new

liquids pipelines in Illinois. While one transported crude oil into an Illinois storage facility,

the other transported a refined product, liquid hydrocarbons (diluents), into Canada. The

diluents, however, were sourced in part from Illinois-area refineries. That proceeding

56

certainly does not establish precedent for a finding of public need based on the exporting

of crude oil, especially oil originating out of state and merely being shipped through Illinois.

Intervenor William Klingele noted the lack of information from Joint Petitioners as

to the ultimate destinations of the additional volumes that the proposed increase in

pumping capacity would enable. He stated he saw no evidence as to how much if any of

the additional oil will be delivered to and processed by refineries in Illinois, or anywhere

in the U.S. It appeared to Mr. Klingele that most of the additional volumes will be

exported. He found it strange that, in contrast to the evidence as to the destinations of

the oil Joint Petitioners offered in the original pipeline Certificate dockets (14-0754 and

14-0755), they offered no similar public need-related evidence in this proceeding.

Moreover, they have resisted attempts to elicit information about destinations for the

additional volumes. (Klingele Ex. 1.0, lines 298-311)

Mr. Stuckey made similar observations in his direct testimony. He stated that it is

not known that the public in Illinois or the Midwest will benefit from the proposal. He noted

that Joint Petitioners refused in discovery to identify any Illinois refineries that would

receive crude oil from the proposed incremental capacity. (SOIL-SC Ex. 1.0, lines 174-

182) Mr. Stuckey then testified that in another discovery request, Joint Petitioners

acknowledged that the incremental crude volumes could be exported from the U.S. for

refining or conversion elsewhere. (Id., lines 182-184; SOIL-SC Ex. 1.5)

Mr. Emery finally acknowledged near the end of his rebuttal testimony that at least

some of the incremental crude volumes enabled by Joint Petitioners’ proposed capacity

expansion plan would be exported:

57

Q. Do you acknowledge that some of the increased amount of crude oil that the Dakota Access and ETCO pipelines will be able to deliver to Nederland, Texas, with the additional pumping capacity will be exported?

A. As I have stated, and as the Petitioners have stated in response to data requests, the Petitioners transport crude oil placed on their pipelines by shippers to the destination points of the Patoka, Illinois, and Nederland, Texas, terminals, and do not control or necessarily know the ultimate destinations or uses of the oil. … However, as Petitioners’ witnesses Dr. Makholm and Mr. Caruso explain, this transition to and position as an exporter is a good thing, not a bad thing.

(Dakota Access-ETCO Ex. 1.2, lines 239-253) Mr. Emery added that “there is a market demand for additional exports of U.S.-produced

crude oil, to which Petitioners’ parent company is responding with plans for additional

transportation facilities. (Id., lines 280-282)

As it became more evident that much if not most of the incremental crude oil

volumes would be exported rather than refined in the U.S., Joint Petitioners added expert

testimony attempting to defend and justify crude oil exports as being consistent with the

interests of our country. As explained hereinabove, however, in no common carrier by

pipeline docket of which SOIL-SC-WK are aware has this Commission based a finding of

public need on the exporting of the liquid product(s) carried by the pipeline.

Despite Joint Petitioners’ lack of candor regarding the destination of the

incremental crude oil they propose to transport, compelling evidence exists that their

primary parent, Energy Transfer, plans to export the crude. To begin with, Mr. Stuckey

relates that the Gulf Coast, where the ETCO Pipeline ends, was the departure point for

more than 90% of U.S. crude oil exports. The EIA attributes the export increase in part

to the increase in domestic production. According to the EIA, the increased production is

mostly of light, sweet crude oils, but U.S. Gulf Coast refineries are configured mostly to

process heavy, sour crude oils. This increasing production and mismatch between crude

58

oil type and refinery configuration causes more of U.S. crude oil production to be

exported. (SOIL-SC Ex. 1.14) Coincidentally, the type of crude oil shipped by Joint

Petitioners is light, sweet crude oil. (SOIL-SC Ex. 1.0, lines 248-249)

Joint Petitioners’ interest in expanding their transportation capacity to the Gulf

Coast coincides with their primary parent’s plans to expand on their existing crude oil

export capacity from Texas. Energy Transfer is in discussions with potential shippers to

build an export facility in Texas capable of handling supertankers, which can transport

about 2 million barrels of crude oil. (SOIL-SC Ex. 1.15) In addition, during Energy

Transfer’s August 2019 earning call, Thomas Long, Energy Transfer’s Chief Financial

Officer, stated:

But from Energy Transfer's standpoint our focus is finding a home for our liquids. And if that means China it means China, if it means other parts of the world and that's what we're doing. So we certainly have expanded out to other areas. But we remain in negotiations with several – a number of Chinese companies. (SOIL-SC Ex. 1.16, at 29)

Mr. Long’s reference to China is consistent with Mr. Emery’s acknowledgement that

Energy Transfer recently opened an office in Beijing, the capital of China. (Tr. at 402-403)

In addition, in December of 2019, Energy Transfer closed on its acquisition of

SemGroup (Tr. at 402), another pipeline company with refinery, storage, and export

facilities in Houston, Texas. According to Energy Transfer’s September 2019 press

release announcing the acquisition, SemGroup will further expand on Energy Transfer’s

crude oil export capabilities. (SOIL-SC Exhibit 1.17) The December 2019 press release

announcing the completion of the acquisition reiterated the enhancement of Energy

Transfer’s export capabilities, noting that SemGroup’s Houston Fuel Oil Terminal has five

deep-water ship docks and seven barge docks. (SOIL-SC Cross Ex. 4)

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In light of Joint Petitioners’ inability to provide evidence of domestic use and

compelling evidence that the additional throughput Joint Petitioners propose to transport

will be exported, the Commission should find that Joint Petitioners have not demonstrated

a public need for their capacity optimization plan.13

G. The Public Burdens Outweigh the Private Benefits

1. Balancing Costs and Benefits is Appropriate and Necessary

Concomitant with the question of need for a project like Joint Petitioners is the

question of what benefit is to be gained by implementing such a project. For if a project

is truly needed, there must be some benefit to be gained by it. Moreover, the benefit must

be to the public, rather than to one or more private entities. Furthermore, it is not enough

for Joint Petitioners to simply identify one or two benefits to meet their burden of

establishing need. As SOIL-SC witness Peter Christensen explained, an evaluation of

the benefits of the project to the public “must consider a range of potential impacts and it

is reasonable to assume that the expansion will be beneficial if and only if the prospective

benefits exceed the costs.” (SOIL-SC Ex. 7.0, lines 39-41) To consider only benefits

without contemplating burdens or costs is shortsighted and may very well result in net

harm to the public. Fortunately, the Commission has expressed support for considering

both benefits and burdens to the public associated with projects brought before it. In the

aforementioned Lakehead proceeding, Docket No. 96-0145, the Commission considered

a pipeline project under Section 15-401 of the PUA. In its Order denying the requested

Certificate, the Commission found that, “[t]he benefits and burdens to the public resulting

13 Notably, Staff did not address whether the desire to export the Bakken crude is sufficient to demonstrate a public need.

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from the proposed project are relevant when addressing the public convenience and

necessity.” (1997 Ill. PUC Lexis 255, at *38)

SOIL-SC-WK recognize that, as an administrative body, the Commission is not

required to abide by the referenced finding in Docket No. 96-0145, but logic validates the

wisdom in doing so. Mr. Stuckey offers a simple and apt analogy to demonstrate why

broader examination of benefits and costs consistent with the Commission’s earlier

conclusion remain appropriate and reasonable, both in the context of evaluating the public

convenience and necessity under Section 15-401 and evaluating whether changes are

necessary and ought reasonably to be made or are necessary and should be erected to

promote the convenience of the public under Section 8-503. Consider, for example, a

decision about whether to use asbestos as building insulation. Most buildings need some

form of insulation. Asbestos has beneficial insulation qualities. Asbestos would therefore

seem to fit a need and provide a benefit. Any rational evaluation, fortunately, does not

end there. Although unknown when its use first began, science now recognizes that

asbestos is dangerous to human health. Asbestos is still used in limited circumstances,

but it is now widely regarded as a substance to be avoided. (SOIL-SC Ex. 4.0, lines 745-

752) In the situation at hand, assuming the Commission recognizes a need exists to ship

an additional 530,000 bpd despite the deficiencies in the forecasts and the apparent lack

of shipper interest discussed elsewhere in this Initial Brief, SOIL-SC-WK aver that the

Commission should balance any marginal benefit associated with shipping an additional

530,000 bpd against the negative impacts of climate change resulting from the

consumption of that crude oil, the increased risk of spills due to the reasons outlined by

SOIL-SC witness Kuprewicz, and greater risk imposed on landowners without additional

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compensation. (SOIL-SC Ex. 4.0, lines 745-757) Like asbestos, science now recognizes

the harm inherent in continued fossil fuel use and such negative attributes must be

weighed against the benefits claimed by Joint Petitioners.

In support of their claim of need, Joint Petitioners have the burden of proving that

their proposal benefits the public. Not surprisingly, Joint Petitioners do not acknowledge

any burdens or costs associated with the capacity optimization plan. To do so would

further weaken their claims of need and make meeting their burden in this docket more

difficult. Joint Petitioners’ witness Jeff Makholm even argues in his prepared testimony

that it is not appropriate to balance costs and benefits. He denies there being any

distortions or market imperfections that warrant such balancing. (Dakota Access-ETCO

Ex. 6.2, lines 441-496) Contrary to the Commission’s Order in Docket No. 96-0145, Dr.

Makholm argues in his written testimony that regulators let the competitive market and

“private profitability calculations” determine the “desirability” of additional pipeline projects

to the transport market. (Id., lines 478-482) Perhaps realizing the imprudence of denying

in his prepared testimony the need to balance costs and benefits, however, on cross-

examination Dr. Makholm testified that the Commission “is weighing costs and benefits

of approving in the public’s interest the optimization project.” (Tr. at 540) In trying to

explain himself, Dr. Makholm attempts to distinguish SOIL-SC witness Peter

Christensen’s discussion of the need for a cost-benefit analysis from what he

characterizes as the Commission’s customary balancing of costs and benefits. (Id.) To

be clear, Dr. Makholm does not deny that a cost-benefit analysis can be conducted, he

simply indicates that the vague analysis he references has a different purpose. (Id.)

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Notably, among the vagaries of his testimony on cross-examination, Dr. Makholm does

not identify any costs or burdens associated with Joint Petitioners’ proposal.

In demonstrating that benefits exceed costs, it is incumbent upon Joint Petitioners

to provide evidence that the benefits that they outline will exceed the costs associated

with potential damages. As Dr. Christensen avers, proceeding without such an attempt

to evaluate and compare the costs and benefits associated with the proposed expansion

poses undue risk to Illinois residents and the public at large. (SOIL-SC Ex. 7.0, lines 54-

58) While Joint Petitioners attribute a handful of benefits to their proposal, which will be

discussed further below, Dr. Christensen observes that there has been no serious attempt

to evaluate whether the proposed expansion will produce positive net benefits. (Id., lines

61-63)

In furtherance of the effort to deflect attention from the negative impacts of the

proposal, Dr. Makholm accuses SOIL-SC-WK of wanting the Commission to change its

focus from the transportation of crude oil to the relationship between the oil industry and

climate change. (Dakota Access-ETCO Ex. 6.2, lines 253-259) To the extent that the

Commission focused exclusively on transportation above all else in past common carrier

dockets, SOIL-SC-WK are not asking the Commission to find that it was wrong to do so.

Rather, SOIL-SC-WK are asking the Commission to find that the category of burdens to

weigh against benefits is broader today than it was in the past. The world now recognizes

burdens associated with climate change that were previously largely unrecognized. If

“traditional criteria” for considering public need, as relied upon by Dr. Makholm to justify

disregarding science (Dakota Access-ETCO Ex. 6.2, lines 273-274), is as sacrosanct as

he suggests, those afflicted with COVID-19 would be treated with leeches and exiled to

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COVID colonies. The Commission is not barred from broadening its public need

considerations and, in fact, the appellate court has found that the Commission has the

discretion to do so. In affirming the Commission’s evaluation of public need in Lakehead

and denial of a Certificate, the court found that the legislatures “failure to provide a

statutory definition of public need at any time strongly suggests that it intended to allow

the Commission to exercise a flexible approach toward these matters.” (296 Ill. App. 3d

942, *954)

Consistent with the Commission’s earlier finding in Docket No. 96-0145 (1997 Ill.

PUC Lexis 255, at *38) that the benefits and burdens to the public are relevant, the

Commission must balance any benefits of Joint Petitioners’ proposal against the

associated burdens. The Commission need not and should not limit itself to the types of

burdens considered in prior dockets.

2. Purported Benefits

When identifying the benefits of their proposal, Joint Petitioners offer vague

references to serving the needs of shippers (Dakota Access-ETCO Ex. 1.5), enhancing

U.S. energy security (Id.), providing additional crude for domestic refineries (Dakota

Access-ETCO Ex. 1.2, lines 159-162), safety and cost advantages over railroad and truck

transportation (Dakota Access-ETCO Ex.1.0, lines 172-177), and royalties, jobs, and a

“general benefit” for the people whose jobs make crude oil exports possible. (Dakota

Access-ETCO Ex. 6.0, lines 259-261). At no point do Joint Petitioners make any attempt

to even generally quantify the claimed benefits or otherwise rank the claimed benefits.14

14 Dr. Makholm offers a per barrel cost comparison of transportation methods, but not does profess to know how much of a benefit is attributable to any sector of the public. (Dakota Access-ETCO Ex. 6.2, Table 1)

64

When asked to identify the beneficiaries of their proposal, in other words, who they

consider to be the public benefitting from nearly doubling the throughput on the pipelines,

Joint Petitioners list first shippers seeking to transport crude oil and processors of crude

oil such as refineries and petrochemical manufacturers. The remainder of their list

consists of the general public as consumers of refined petroleum products and those

located along alternative road and rail routes where crude may pass or those wishing to

use trucks and/or railroads to ship goods. (Dakota Access-ETCO Ex. 1.4, at 2) At no

point do Joint Petitioners describe in any detail how the general public (those not directly

involved in the oil industry) will experience improvements or gains as a result of the

capacity optimization plan.15

The amorphous and illusory benefits cited by Joint Petitioners are insufficient to

demonstrate a need for the capacity optimization plan, particularly when compared to the

burdens associated with Joint Petitioners’ plan. But before addressing the burdens, it is

useful to evaluate the alleged benefits more thoroughly. With regard to serving the needs

of shippers, as discussed earlier, Joint Petitioners’ 2018 open season resulted in only six

shippers seeking transportation service, five of which committed to only a relatively small

portion of the proposed expansion. (Confidential SOIL-SC Cross Ex. 9) As of the time of

the evidentiary hearing, the open season initiated in July 2019 remained open with no

commitments resulting therefrom and no set closing date.16 (Tr. at 392) Moreover, with

15 In making its recommendation in this docket, Staff relied solely on information provided by Joint Petitioners and conducted no independent analysis or investigation and identified no other benefits other than those referenced by Joint Petitioners (Tr. at 773) 16 Incidentally, Joint Petitioners indicated in their November 7, 2019 Response to SOIL-SC’s Motion to Compel that the 2019 open season would close on December 17, 2019. (Response, at 10, footnote 13) Joint Petitioners subsequently extended the open season without explanation. On cross examination, Joint Petitioners’ witness Glenn Emery testified, “There has never been a defined end close date for the open season.” (Tr. at 392) Clearly, either Joint Petitioners’ verified Response or Joint Petitioner’ sworn testimony

65

the previously discussed short-term (through 2023) and incomplete production forecasts

relied upon by Joint Petitioners, it is questionable whether the full capacity expansion will

ever be committed to. Furthermore, the impact of COVID-19 on the oil industry makes

the failure of Joint Petitioners’ current open season all the more likely. Surprisingly, Joint

Petitioners’ primary economics witness claimed at the hearing not to be aware of the

pandemic’s impact on the industry. While he testified that he tracks oil prices on an

ongoing basis (Id., at 504) and is aware of COVID-19 (Id., at 507), Dr. Makholm denies

having read any analysis of potential impacts of the ongoing pandemic on global oil

demand. (Id., at 533)

With regard to Joint Petitioners’ claim that their project will enhance U.S. energy

security and provide additional crude for domestic refineries, it is difficult to see how that

is possible since, as noted above, Joint Petitioners have repeatedly pointed out that they

do not know where the crude they transport ends up and it has been established that

PADD II and PADD III refineries are operating at near 100% capacity (at least under the

level of demand prior to the COVID-19 pandemic). In addition, many domestic refineries

rely on imports of their prefer’red crude grade, not the light sweet crude from the Williston

Basin. (SOIL-SC Ex. 4.0, lines 469-472, lines 676-678) Dr. Makholm’s argument that the

expanded capacity will aid in the transportation of fuel during a national crisis (Dakota

Access-ETCO Ex. 6.2, lines 311-317) fails to validate Joint Petitioners’ claim of benefit

since sufficient transportation capacity from the Willison Basin already exists to satisfy

domestic needs. Moreover, since, as explained above, the goal of Joint Petitioners’

is inaccurate. This and other direct contradictions have caused SOIL-SC-WK to question many of Joint Petitioners’ statements.

66

primary parent appears to be to export the light, sweet Bakken crude overseas, it is not

clear how doing so enhances U.S. energy security.

In terms of safety advantages of pipelines over truck or railroad transportation, it

has never been SOIL-SC-WK’s contention that any particular form of crude oil

transportation is 100% safe or accident free. The important point to consider in the

context of safety is what is actually being measured in the statistics cited by the parties.

Dr. Makholm cites studies to argue that there are fewer spill incidents for pipeline

transportation of crude oil than for rail transportation. (Dakota Access-ETCO Ex. 6.2, lines

222-225) But as SOIL-SC witness David Hughes observes, the Congressional Research

Service (“CRS”) has recognized that “railroads consistently spill less crude oil per ton-

mile transported than other modes of land transportation.” (SOIL-SC Ex. 8.0, lines 78-

81) The CRS reports that rail oil spillage rates are less than one-third that of pipeline per

ton-mile. (Id., at 82-83) The decision for the Commission to make is whether it considers

larger less frequent pipeline releases preferable to smaller more frequent rail releases,

bearing in mind that overall less oil is spilled by railroads. SOIL-SC-WK submit that

regardless of the Commission’s decision on this issue, Joint Petitioners have still failed to

show that any benefits of their proposal outweigh the associated burdens. With regard

to the general per barrel cost of pipeline transportation compared to rail transportation,

Joint Petitioners fail to recognize that the flexibility of the U.S. rail network offers access

to markets not served by pipelines, which SOIL-SC-WK contend offset any general

benefit attributable to Dr. Makholm’s generic cost comparison.17 (Id., at 75-78)

17 Staff witness Brett Seagle references the testimony of Joint Petitioners’ witness Glenn Emery for his statement that transportation of crude oil by railcars and trucks presents safety issues not presented by pipeline transportation. (Staff Ex. 1.0, lines 166-168) Under cross-examination, Mr. Seagle admits that he conducted no analysis or investigation of his own to confirm Mr. Emery’s opinion and simply relied on

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The last category of benefits offered by Joint Petitioners (royalties, jobs, and a

“general benefit” to people involved in exports) lacks sufficient specificity to know to what

extent such alleged benefits exist. SOIL-SC-WK do not deny that exports of crude oil will

support some jobs and involve the payment of some amount of royalties. (SOIL-SC Ex.

4.0, lines 733-734) But any benefits attributable to such have certainly not been quantified

in any way by any party in this proceeding. Joint Petitioners’ general reliance on an

undefined number of jobs and an unspecified financial gain to the handful receiving

royalties can be accorded little weight as a benefit.

More telling than the nature of the benefits Joint Petitioners identify are the

beneficiaries Joint Petitioners identify when evaluating the public need for the capacity

optimization plan. The members of the public that Joint Petitioners identify as benefiting

from their proposal fall into two groups: (1) the direct beneficiaries consisting of the

shippers and processors of the additional crude oil Joint Petitioners seek to transport, and

(2) members of the general public that use petroleum products and/or use the roads and

rail systems that would otherwise be used to transport the additional crude if Joint

Petitioners’ request is denied. Considering the second group first, there is no evidence

of any measurable benefit to the general public—a point which Joint Petitioners appear

to concede. Notably, when asked whether Illinois citizens will experience any change in

the price of refined petroleum products as a result of the capacity optimization plan, Joint

Petitioners essentially acknowledge that they cannot assure any change in consumer

prices relating to their proposal, since consumer prices are impacted by multiple factors.

common sense to conclude that transporting oil underground must be safer than transporting oil on an interstate. (Tr. at 773) This is consistent with the level of Staff’s review throughout this proceeding. Notably, there is no evidence that Staff conducted any independent analysis of the safety of the pipelines if the capacity optimization plan is implemented.

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(SOIL-SC Ex. 7.2) SOIL-SC witness Peter Christensen agrees with this assessment. In

the absence of any compelling rationale for why a relatively small expansion in the global

context would affect the price of gasoline or other refined products, he concludes that any

benefits to U.S. consumers in term of price effects will be negligible. (SOIL-SC Ex. 7.0,

lines 91-95)

With regard to the direct beneficiaries in the first group, the record is clear that this

group is limited in number, with the only known members of that group being the six

shippers listed in confidential SOIL-SC Cross Ex. 9. Whether there are in fact any

domestic refiners or processors of the crude oil is unknown since, as previously noted,

Joint Petitioners are steadfast in their denial of knowing where any of the transported

crude ends up. SOIL-SC-WK find it difficult to believe Joint Petitioners’ schedulers and

the operators at ET’s Nederland terminal, the largest above-ground crude oil storage

facility in the U.S., do not have some idea of where the oil they handle is going, even if it

is simply knowing whether the oil will be sent to a crude carrier for export. (SOIL-SC Ex.

4.0, lines 336-342)

There is, however, another group of beneficiaries that Joint Petitioners omit from

their list of beneficiaries of their capacity optimization plan—Joint Petitioners themselves

and their owners. Joint Petitioners’ neglect to mention their own interest in the proposal.

But as Dr. Makholm indicates, the Commission should rest assured that this group is

looking out for its own interests. As mentioned earlier, Dr. Makholm testifies that “private

profitability calculations” underlie pipeline companies’ decisions. (Dakota Access-ETCO

Ex. 1.2, lines 480-482) He even suggests that regulators approve pipeline projects

without any other consideration: “If pipeline companies see, and show, that there are

69

sufficient buyers for their transport services to give reasonable assurance that those new

pipelines will be adequately used, then regulators approve them.” (Id., lines 482-484) On

cross examination Dr. Makholm further suggests that Joint Petitioners’ decision to invest

in the project should be sufficient rebuttal to SOIL-SC witness Hughes’ evaluation of the

need for additional Bakken region take-away capacity. (Tr. at 536)

3. Burdens of Joint Petitioners’ Proposal Having determined that the benefits identified by Joint Petitioners are essentially

limited to themselves and six shippers, it is appropriate to consider the burdens identified

by SOIL-SC-WK (since Joint Petitioners, IBEW, LIUNA, and Staff recognized no burdens

or costs associated with capacity optimization plan). The burdens to address include the

increased risk of releases as well as the deleterious effects of climate change. Because

the technical aspects of Joint Petitioners’ proposal will be addressed in greater detail in a

latter section of this Initial Brief, it is sufficient for purposes of this section to generally

describe the concerns related to releases raised by SOIL-SC witness Richard Kuprewicz.

a. Increased Risk of Releases

As an initial matter, Mr. Kuprewicz noted that the crude oil flow velocity under Joint

Petitioners’ capacity optimization plan will exceed 15 feet/second. While there is no rule

against such an extreme velocity, he expressed significant concern related to the

possibility of surge overpressure. Surge is the change in pressure in liquid pipelines

caused by a major change in flow, such as a pump shutdown/startup or inadvertent

remotely operated mainline valve closure. Mr. Kuprewicz noted that inadvertent remotely

operated mainline valve closure is not an uncommon occurrence on a hazardous liquid

pipeline. Surge pressure increases occur within large diameter liquid hydrocarbon

70

pipelines in microseconds and can move up and down many miles along a pipeline

system at slightly under one mile per second. (SOIL-SC Ex. 2.0, lines 152-161) When

surge overpressure occurs, the result can easily be a rupture of the pipeline. Joint

Petitioners’ surge analysis offered as confidential Dakota Access-ETCO Ex. 7.3, once

finally provided,18 reflects ***CONFIDENTIAL xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx CONFIDENTIAL*** (Dakota Access-

ETCO Ex. 7.3, at 23, 24, 31, 32, 39, 40, 64, and 70) Mr. Kuprewicz does not consider

such systems failsafe and cautions the Commission against assuming that pipeline

operations will always go as planned. Notably, on March 25, 2020, the U.S. District Court

for the District of Columbia issued an opinion criticizing the U.S. Army Corps of Engineers’

(“USACE”) evaluation of DA’s worst-case discharge on the same pipeline under

consideration in this docket. In that case, the court found that assuming the DA Pipeline

people and systems will function as expected was wrong. (Standing Rock Sioux Tribe v.

U.S. Army Corps of Engineers, No. 16-1534, at 31-32)

Mr. Kuprewicz also raised concerns regarding rupture at a point along the ETCO

Pipeline unrelated to surge. Briefly, when refurbishing the natural gas pipeline south of

Patoka, Illinois to transport crude oil, ETCO replaced a roughly 30-mile segment with new

pipe having a maximum operating pressure (“MOP”) of 1,440 pounds per square inch

gauge (“psig”). At the end of that new segment, the old pipe has a MOP of 900 psig.

(SOIL-SC Ex. 5.0, 231-241) In the event that crude oil leaving the Patoka pump station

18 As with many discovery questions posed by SOIL-SC, Joint Petitioners objected to providing information related to its surge protection efforts and refused to provide meaningful answers. (SOIL-SC Ex. 2.5) Not until after SOIL-SC submitted its written direct testimony identifying safety concerns did Joint Petitioners relent and provide some of the surge related information sought by SOIL-SC, such as that provided in/with Dakota Access-ETCO Ex. 7.0.

71

at a pressure higher than 900 psig does not loose enough pressure by the time it arrives

at the older ETCO pipe segment (having a MOP of 900 psig), SOIL-SC-WK are concerned

that the older pipe will not tolerate the higher pressure and rupture. As reflected in the

confidential surge analysis, there ***CONFIDENTIAL xxxxxxxxxxxxxxx

CONFIDENTIAL*** at the point where the MOP drops from 1,440 psig to 900 psig to

protect against overpressure. (Dakota Access-ETCO Ex. 7.3, at 49, 52, and 57) This risk

of rupture and release poses another burden on the public unaccounted for by Joint

Petitioners.

The threat of catastrophic release is also present where corrosion exists because

it can weaken a pipe, making it more susceptible to surge overpressure. Mr. Kuprewicz

expressed concern about a cluster of corrosion anomalies identified along the ETCO

Pipeline during a 2019 inline inspection (“ILI”). While not an immediate concern, the threat

level could rise in the future if not adequately addressed. (SOIL-SC Ex. 5.0, lines 269-

276) Unfortunately for the public, Joint Petitioners do not plan on evaluating the corrosion

Mr. Kuprewicz references. According to Joint Petitioners, the cluster of corrosion

anomalies Mr. Kuprewicz discusses is not actionable under integrity management

regulations of the U.S. Department of Transportation Pipeline and Hazardous Materials

Safety Administration (“PHMSA”). (Dakota Access-ETCO Ex. 8.2, lines 470-478) As

someone who was involved in the development of PHMSA’s integrity management

regulations (SOIL-SC Ex. 2..0, lines 18-25; SOIL-SC Ex. 2.1) and in light of the

characteristics of the coal tar coating on the subject pipe, Mr. Kuprewicz believes

verification digs are warranted. (SOIL-SC Ex. 5.0, lines 254-284) But according to the

response of Joint Petitioners’ witness John Godfrey to data request SOIL-SC 9.036, Joint

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Petitioners have not and do not plan to conduct a field verification dig of the corrosion

cluster. (Confidential SOIL-SC Cross Ex. 1; March 6, 2020 Transcript at 363-364) For

the handful of verification digs that did occur following the 2019 ILI, Mr. Godfrey was not

aware of what conditions spurred ETCO to conduct verification digs at those locations

(Id., at 365), so it is not known how those anomalies compare to the corrosion cluster

noted by Mr. Kuprewicz.

Corrosion is also a concern and imposes a risk and burden on the public because

it can lead to smaller leaks that are more difficult to detect. The frequency of such smaller

releases is apparent from examining confidential SOIL-SC Exs. 4.10 and 4.11. SOIL-SC

Ex. 4.10 identifies in response to a Staff data request pipeline leaks or losses of structural

integrity from 2017 through May 2019. SOIL-SC Ex. 4.11 identifies in response to a SOIL

data request pipeline leaks or losses of structural integrity from 2012 through 2014. Note

that the data request in SOIL-SC Ex. 4.11 sought information regarding leaks and losses

of structural integrity from 2010 onward, but Joint Petitioners provided only three years of

information. Excluding losses of structural integrity caused by third parties, the more

recent list in SOIL-SC Ex. 4.10 reflected ***CONFIDENTIAL xxxxxxxxxxxxxxxxxxxx



xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx CONFIDENTIAL*** The list for the period of

2012 through 2014 in SOIL-SC Ex. 4.11 did not include any losses of structural integrity

due to a third party. That list reflected ***CONFIDENTIAL xxxxxxxxxxxxxxxxxxxxxxxxxx



73


xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx CONFIDENTIAL***

The significance of corrosion leading to pinhole leaks is apparent when one

realizes how much crude oil can escape from a pinhole leak. Such a scenario is all the

more disturbing when one realizes that Joint Petitioners freely acknowledge that their leak

detection system cannot detect pinhole leaks. SOIL-SC Ex 4.13 contains Joint Petitioners

response to data request SOIL-SC 2.023. Joint Petitioners admit that they cannot detect

leaks up to 1% of the transported volume on the pipeline. At a flow rate of 1,100,000 bpd,

in one hour 458 barrels of crude oil can escape undetected. Shockingly, Joint Petitioners

do not recognize this as a concern or risk despite the frequency of pinhole leaks reflected

in SOIL-SC Exs. 4.10 and 4.11. In fact, Joint Petitioners’ witness Todd Stamm

characterizes pinhole leaks as “uncommon.” (SOIL-SC Ex. 4.13) This is yet another

example of Joint Petitioners presenting conflicting information on important issues in this

docket.

While Joint Petitioners may not be concerned about releases, landowner William

Klingele is. Mr. Klingele is an intervenor in this docket who owns 385 acres of farmland

adjacent to the DA Pipeline route in Brown County, Illinois. (Klingele Ex. 1.0, lines 10-12)

He has lived with the risk of a crude oil release on the adjacent land spreading onto his

property since the pipelines became operational. In light of the undisputed increase in

flow velocity, Mr. Klingele is troubled by the greater associated risks and larger spill

volumes that may occur in the event of a release. (Id., lines 104-106, 110-112) He notes

that crude oil releases, even relatively small releases, do not stay confined to the

particular location along a pipeline. This is due to the fact that the spilled oil tends to rise

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to the surface and contaminate a large area of valuable topsoil. In the context of his own

property and the field drainage system which runs through the DA Pipeline easement, he

is concerned that a release of crude oil will adversely affect, if not disable, the integrated

drainage system on his farmland, thereby inhibiting water drainage on his property. An

October 30, 2019 oil pipeline spill on another pipeline in North Dakota is illustrative of oil

tending to go to the surface. (Klingele Ex. 2.0, lines 131-135) The impacted area,

depicted below, was reported as 1,500 long and 15 feet wide. (Klingele Ex. 2.1, at 1)

(Klingele Ex. 2.1, at 1)

Mr. Klingele is not comfortable with the increased burden Joint Petitioners’ proposal

subject him and his property too, particularly in light of the insufficient demonstration of

need and public benefit made by Joint Petitioners.

b. Exacerbation of Climate Change The burden and risk associated with Joint Petitioners’ capacity optimization plan,

however, are not limited to releases of crude oil directly jeopardizing lives and property.

A decision by the Commission to allow Joint Petitioners to implement their proposal and

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pump up to 1,100,000 bpd will also expose Illinois, as well as the nation and world, to

greater harm from the effects of climate change. The phenomenon of climate change is

generally recognized by science, as are its causes and impacts on the Earth. To be clear,

the negative impacts of climate change are not just a matter of more severe weather. For

example, Moody’s Investors Service recognizes that local government debt, particularly

in Illinois, will be adversely affected as heat stress becomes a greater issue facing local

governments. (See SOIL-SC Ex. 1.2)

Interestingly, Joint Petitioners do not acknowledge environmental degradation as

a cost associated with facilitating the consumption of nearly twice the amount of crude oil.

Moreover, they also turn a blind eye to the effects that the transition away from fossil fuels

may have on their plans. SOIL requested information from Joint Petitioners on how their

operations impact climate change and how climate change may impact their operations.

Joint Petitioners refused to answer and in their supplemental response to data request

SOIL 1.099 characterized the term “climate change” as “undefined, vague, and

ambiguous.” They further claimed that “there is no reason to believe that transportation

of crude oil will have any impacts on climate change.” Oddly, it is not clear how they know

that the transportation of crude oil will have no impacts on the climate if in the same

response they claim to not know what “climate change” means.19 In related data requests

SOIL 1.102 and 1.103, Joint Petitioners object to being asked how they factored into their

analysis for shipping capacity the possible curtailment of crude oil usage due to a carbon

tax and other government or regulatory disincentives for fossil fuel use. They do admit,

however, that they “did not explicitly take into account any potential reduction in petroleum

19 This is another example of Joint Petitioners’ self-serving inconsistent statements that cast into doubt their other claims in this proceeding.

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usage due to ‘government and other actions.’” These data requests have been admitted

into the record as SOIL-SC Exhibit 1.3. As discussed above in the context of production

forecasts, Joint Petitioners’ witness Laura Olive also acknowledges that she did not

perform an analysis of how efforts to mitigate climate change may impact demand for

fossil fuels. (SOIL-SC Cross Ex. 14, at 1) During cross examination, it also became

painfully obvious that Joint Petitioners’ witness Glenn Emery did not want to admit that

the efforts Illinois has taken to move away from carbon-based energy sources is aimed

at mitigating the effects of climate change.20 (See March 6, 2020 Transcript at 429-432)

To put the potential emissions at stake in context, renowned climate scientist and

former Director of the Goddard Institute for Space Studies of the National Aeronautics

and Space Administration (“NASA”), James Hansen, calculates that the additional crude

at issue, once burned as intended, will emit ~ 97 mmt CO2-eq/year. This is roughly equal

to the emissions from fifteen 1,000-megawatt coal plants or 20 million cars. (SOIL-SC Ex.

3.0, lines 321-324) Using Dr. Hansen’s calculation and a well-established central

estimate for the social cost of carbon of $41.50 per ton, Dr. Christensen calculates that

$4.03 billion in annual damages would result worldwide from full implementation of Joint

Petitioners’ capacity optimization plan.21 Such damages include impacts to agricultural

yields, direct human health impacts, infrastructure and mortality impacts from sea level

rise and increasingly frequent storms, etc. (SOIL-SC Ex. 7.0, lines 177-183)

20 Staff witness Brett Seagle acknowledges that pollution “could possibly be” an externality associated with pipelines (Tr. at 776), but there is no evidence in the record that Staff gave any consideration to the negative impacts of pollution or climate change on the public. 21 Joint Petitioners’ witness David Harrison offers a social cost of carbon at the U.S. national level of $6.23 per ton and at the Illinois level of $0.27 per ton. (Dakota Access-ETCO Ex. 9.2, lines 691-693, 705-706) This results in annual damages of $604,310,000 to the United States and $26,190,000 to Illinois from the consumption of the crude Joint Petitioners seek to bring to market.

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Joint Petitioners’ witness David Harrison criticizes both Dr. Hansen’s calculation

and Dr. Christensen’s calculation. He argues that denial of the Joint Petition will not mean

that the crude that would otherwise be transported by Joint Petitioners will not be

transported by another and consumed. He points out (contrary to Joint Petitioners’

argument that additional capacity is needed) that there is enough capacity in the existing

railroad and pipeline systems to transport the additional crude oil from the Williston Basin.

(Dakota Access-ETCO Ex. 9.0, lines 194-202) With regard to Dr. Christensen, Dr.

Harrison complains that Dr. Christensen’s source for the social cost of carbon is too

technical (Dakota Access-ETCO Ex. 9.2, lines 579-583) and contains too many

uncertainties to be relied upon. (Id., lines 718-721) Noticeably absent from Dr. Harrison’s

testimony, or from the testimony of any of Joint Petitioners’ witnesses, is an alternative

emission’s calculation or any attempt to value the negative consequences of those

emissions. This absence is significant because when SOIL asked Joint Petitioners earlier

in this proceeding how much additional carbon dioxide and other greenhouse gases

would be emitted by the additional crude oil at issue, Joint Petitioners stated that they

“have not made the requested calculations and object to being required to perform the

calculations specified by SOIL.” (Dakota Access-ETCO Ex. 1.3, at 1) Joint Petitioners

should not be able to object to a request that they calculate emissions and also object

when someone else performs the calculations they refuse to. Had Joint Petitioners

desired to present their own calculations, they were free to do so.

Dr. Harrison also criticizes SOIL-SC-WK’s concern with the climate impact of Joint

Petitioners’ proposal on the basis that there are better ways to mitigate climate change

then by denying pipeline projects. (Dakota Access-ETCO Ex. 9.0, lines 106-123) He

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prefers market based environmental policies and characterizes the denial of the Joint

Petition as an ad hoc means of addressing climate change. (Dakota Access-ETCO Ex.

9.2, lines 184-186) Dr. Harrison’s position, however, does not comport with reality or

recognize the seriousness of the climate situation.

To be clear, SOIL-SC-WK’s primary position in this regard is that Joint Petitioners

have not adequately demonstrated that there will be sufficient crude available to

implement the proposed capacity optimization plan. If despite the realities of the

economically available crude in the Bakken region and competing transportation options,

enough crude does exist to fully implement Joint Petitioners’ proposal, SOIL-SC-WK

acknowledge that the granting of the Joint Petition would not definitively result in the

emitting of an additional 97 mmt CO2-eq/year. Moreover, SOIL-SC-WK are not arguing

that the social cost of implementing the capacity optimization plan will definitely total $4.03

billion annually. As Dr. Hansen explains, the actual impact on global emissions ultimately

stemming from the Commission’s decision in this docket would be a function, at least in

part, of induced price changes, demand changes, supply adjustments, and offsetting

effects. (SOIL-SC Ex. 6.0, lines 45-47) Dr. Hansen avers that if the Joint Petition is

granted, global emissions will increase by some amount over and above what they would

be otherwise, and if the Joint Petition is denied, a reduction in overall emissions will occur.

(Id., lines 49-52) Even Dr. Harrison agreed under cross-examination that in the kind of

situation at hand, an increase in take-away capacity could lead to higher production. (Tr.

at 637-638)

Furthermore, uncertainty in estimates has been rejected by the U.S. Supreme

Court as a reason for an agency avoiding statutory responsibility. In Massachusetts v.

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EPA, 549 U.S. 497, 127 S. Ct. 1438 (2007), the U.S. Supreme Court considered the

Environmental Protection Agency’s refusal to regulate greenhouse gas emissions from

new motor vehicles, in part because of the uncertainty surrounding climate change. The

Court disagreed with the agency and found, “Nor can EPA avoid its statutory obligation

by noting the uncertainty surrounding various features of climate change and concluding

that it would therefore be better not to regulate at this time.” (Id., at 534) Thus, to the

extent that uncertainty exists in the social cost of carbon resources relied upon by Dr.

Christensen, it does not negate the Commission’s ability to consider or rely on Dr.

Christensen’s testimony.

If the Joint Petition is approved, the exact extent of the emissions increase will

depend on the circumstances present when the capacity optimization is implemented.

To the extent of the increase in emissions upon granting the Joint Petition, the

Commission must weigh the effect of the worsened climate against the purported public

benefits referenced by Joint Petitioners and bear in mind overall that any increase in

emissions is unquestionably a step in the wrong direction in addressing the pending

climate disaster.

With regard to Dr. Harrison’s preference for market-based approaches to mitigate

climate change, SOIL-SC-WK have never asserted that denial of projects like Joint

Petitioners’ is the best way to address climate change. Rather, it is the absence of

alternatives that warrants the Commission’s consideration of and action on climate

change when deciding this matter. In other words, given the urgent nature of the climate

crises, a preference for an unavailable solution must not deter the Commission from

taking action when and how it can to mitigate the harm caused by climate change. Nor

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should the Commission be misled by another example of Joint Petitioners’ inconsistent

statements on this matter. While Dr. Harrison testifies at one point that “effective and

cost-effective policies are available to reduce [greenhouse gas] emissions” (Dakota

Access-ETCO Ex. 9.0, line 420), he later acknowledges that none of his preferred market-

based approaches exist in Illinois or at the national level. (Tr. at 632) In light of the fact

that no market-based approach applies to Illinois, if the Commission agrees that carbon

dioxide emissions must be minimized without further delay, it is obvious that the

Commission has the responsibility to curb carbon emissions through its authority over

cases such as the pending proceeding.

Assuming the Commission accepts the science of climate change and concurs

with former NASA administrator Dr. Hansen that approval of Joint Petitioners’ proposal

will result in some increase in carbon dioxide emissions, it is appropriate to discuss the

impacts of climate change so that the burdens of facilitating greater crude oil consumption

can be evaluated. Dr. Hansen had studied climate change for decades. In recent years,

he has attempted to draw attention to the danger of passing climate tipping points --

irreversible climate impacts that could yield a different planet from the one on which

civilization developed. He avers that it is critical for regulators and policy makers at all

levels to dispute the presumption of fossil fuel interests that all fossil fuels ought to be

burned, with their combustion products discharged into the atmosphere. (SOIL-SC Ex.

3.0, lines 64-69) It is now clear, as the relevant scientific community has established for

some time, that high carbon dioxide emissions from fossil fuel burning have already

disrupted Earth’s climate system and that, unless we fundamentally alter business as

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usual, the accumulation of atmospheric carbon dioxide will impose profound and

mounting risks of ecological, economic, and social collapse. (Id., lines 76-80)

Dr. Hansen incorporates into his testimony as SOIL-SC Ex. 3.3 a copy of Ice Melt,

Sea Level Rise and Superstorms: Evidence from Paleoclimate Data, Climate Modeling,

and Modern Observations that 2°C Global Warming is Highly Dangerous. This work was

published by Dr. Hansen in 2015 in conjunction with 16 colleagues and discusses multi-

meter sea level rise. Dr. Hansen and his fellow authors conclude that if carbon dioxide

emissions are allowed such that energy is continuously pumped at a high rate into the

ocean, then multi-meter sea level rise will become practically unavoidable, with

consequences that may threaten the very fabric of civilization. Thereafter, in 2017, Dr.

Hansen and 16 colleagues published Young People’s Burden: Requirement of Negative

CO2 Emissions, Earth Syst. Dynam. In Young People’s Burden, the authors establish

that restoring and securing a viable climate system on which our children and their

progeny necessarily depend now requires not only the phasing out of emissions—

including abandoning new major fossil fuel investment of which the Joint Petitioners’

proposal is a prime instance -- but also “negative emissions,” i.e., extraction of carbon

dioxide from the air. Young People’s Burden is included in the record as SOIL-SC Ex.

3.4.

Dr. Hansen concludes from his work that the present atmospheric carbon dioxide

level is already in the dangerous zone. Unless action is taken without delay, he testifies

that the consequences of climate change will become unbearable. (SOIL-SC Ex. 3.0,

lines 113-137) In the context of sea level rise, Dr. Hansen points out that ice mass losses

from Greenland, West Antarctica, and parts of East Antarctica are growing nonlinearly,

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with doubling times so far this century of approximately 10 years. (Id., lines 142-144)

This prospect alone, he asserts, cries out for urgent national and international action to

constrain carbon pollution, considering that complete disintegration of the Totten glacier

in East Antarctica could raise sea levels by approximately 19-23 feet; that ice fronted by

the Cook glacier in East Antarctica could add 9-13 feet of sea rise; and that West Antarctic

ice fronted by Amundsen Sea glaciers have the potential to raise sea level an additional

9-13 feet. Much of the U.S. eastern seaboard, as well as low-lying areas of Europe, the

Indian sub-continent, and the Far East, would then be submerged. That order of sea level

rise would result in the loss of hundreds of historical coastal cities worldwide, with

incalculable economic consequences. It would also create hundreds of millions of global

warming refugees from highly populated low-lying areas, and thus likely cause or

exacerbate major international conflicts. The United States Department of Defense

identifies climate change as a threat to national security. (Id., lines 148-161)

For the impacts of climate change closer to home, Dr. Hansen references the

National Oceanic and Atmospheric Administration (“NOAA”) publication NOAA National

Centers For Environmental Information: State Climate Summaries. The Illinois summary,

which is available in SOIL-SC Exhibit 3.5, importantly denotes that continued climate

warming in the region is projected to yield substantially increased spring precipitation

rates in Illinois – far more than for the nation as a whole – particularly for the northern

two-thirds of the state. In addition, the NOAA review points out that “historically

unprecedented warming is projected during the 21st century,” though “less warming is

expected under a lower emissions future (the coldest years being about as warm as the

hottest year in the historical record …) and more warming under a higher emissions future

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(the hottest years being about 10°F warmer than the hottest year in the historical record

…).” The NOAA study does not, however, consider the impact of in-migration to Illinois

of refugees from coastal regions submerged by the rising seas or other regions torn by

climate-linked strife. (Id., lines 166-181)

Dr. Hansen also speaks to ocean warming, acidification of the oceans, freshwater

insecurity, species extinction, and the expectation of increased global burdens from

infectious disease and premature death associated with climate change. (SOIL-SC Ex.

3.0, lines 201-202, 205-206, 214-219, 231-240) With specific regard to human health, he

relates that the availability of food, clean air, and clean water will lessen with climate

change, which will lead to increased malnutrition and consequent disorders, including

those related to child growth and development. Increased death, illness, and injuries

associated with chronic obstructive pulmonary disease, asthma, other respiratory

distress, heat waves, and storms will increase. (Id., lines 223-230) As extreme heat

events have become more common with climate change, he relays that their frequency

will increase further if fossil fuel emissions continue to be permitted, so that global

warming becomes locked in and rendered increasingly severe. (Id., lines 208-211)

While Dr. Hansen acknowledges the possibility that the Commission could approve

the proposed capacity expansion and decisions by other more progressive, responsible

authorities could offset the climate degradation fostered by the Commission, he doubts

that would be the outcome. More likely, the wrong decision may well work to demoralize

other authorities. (SOIL-SC Ex. 3.0, lines 312-315) The question for the Commission to

consider is whether it will pave the way for this intended expansion and continue with the

business as usual approach that led us to this climate crisis or whether the Commission,

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by making the right choice, will exercise leadership that other authorities can emulate. If

it takes the latter path, the Commission’s decision and the decisions of those who emulate

the Commission’s leadership will function to mitigate the burdens and costs of climate

change from which Joint Petitioners seek to profit.

Since the Commission previously considered and granted in 2015 Joint Petitioners’

request to transport up to 570,000 bpd of crude oil, Illinois has taken several steps to

move away from fossil fuels. In 2016, Illinois adopted the Future Energy Jobs Act

(“FEJA”), Public Act 99-0906. In 2019, the Illinois legislature considered the Clean

Energy Jobs Act (“CEJA”) in Senate Bill 2132 and House Bill 3624. Both FEJA and the

proposed CEJA are evidence of the societal transition from fossil fuels to cleaner forms

of energy. Clearly, fossil fuels are losing their social license. If CEJA or similar legislation

is enacted, expansion of the capacity of Joint Petitioners’ pipelines will make achievement

of CEJA’s goals substantially more difficult and expensive for Illinois. The enactment of

Public Act 101-373 in 2019 enabled Illinois to create restrictions on greenhouse gas

emissions and address climate change. This too is evidence of society recognizing the

threat of climate change and, in particular, an example of Illinois recognizing that threat.

(SOIL-SC Ex. 1.0, lines 76-87) In addition, Executive Order 2019-6 sets forth clear

statements regarding climate change in relation to Illinois and provides direction for the

Commission’s consideration. Executive Order 2019-6, included in the record as SOIL-

SC Ex. 4.17, states in part:

… all residents of the State of Illinois deserve clean air, clean water, and a safe environment where their communities can thrive; and … the overwhelming consensus of scientists is clear: climate change is real, and must be addressed by public officials; and

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… Illinois is home to forests, farms, prairies, rivers, lakes, and wetlands, and Lake Michigan, and these abundant natural resources must be protected and preserved for future generations; and … Illinoisans are experiencing the damaging effects of climate change, including increased temperatures, soil erosion, and pollution, which cause harm to the environment, economy and residents’ health; and … the State of Illinois acknowledges that it must take action immediately in order to prevent further impacts of climate change; … The State of Illinois shall commit to the principles of the Paris Climate Agreement. (emphasis added) The fact that Illinoisans favor policymakers taking action to address climate change

is apparent from an independent survey by the Center for State Policy and Leadership,

the Institute for Legal, Legislative, and Policy Studies, and the Survey Research Office at

the University of Illinois Springfield conducted in September of 2019. The survey

methodology, sample demographic data, and results are included in the record as SOIL-

SC Ex. 4.18. Among the multiple topics covered in the survey was the question, “How

much priority, if any, do you think dealing with global climate change should be given by

policymakers?” Of the 1,012 registered Illinois voters that participated in the survey, 44%

responded that dealing with global climate change should be given “top priority,” while

41% indicated that it should be given “some priority.” With an overwhelming majority of

respondents (85%) saying dealing with climate change should be given priority, it is clear

that public concern warrants the Commission’s consideration of climate change as it

determines whether to facilitate further climate degradation.

c. Takings Consideration In the 2015 Orders in Docket Nos. 14-0754 and 14-0755, the Commission granted

Joint Petitioners authority under Section 8-509 of the PUA to take private property by

eminent domain. (Docket No. 14-0754 Order at 52; Docket No. 14-0755 Order at 24) In

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doing so, the Commission presumably considered the risk and burden of the project on

landowners, weighing the imposition associated with the proposal against the finding in

the dockets that the project was in the public interest. To be clear, the proposal at issue

in those dockets concerned transportation of up to 570,000 bpd of crude oil. In this

docket, as discussed elsewhere in this Initial Brief, the proposal to transport up to

1,100,000 bpd of crude oil at a higher velocity exposes property and landowners to

greater risk of releases and ruptures. In other words, the Commission granted

condemnation authority under one set of considerations that will change if Joint

Petitioners’ capacity optimization plan is implemented. Unfortunately for landowners,

Joint Petitioners already have the easements they want and it is not even known how

many landowners are aware of the greater risk they will be exposed to under the capacity

optimization plan.

SOIL-SC-WK acknowledge that there is no request for authority under 8-509

before the Commission in this docket. Nevertheless, the Commission should be

cognizant of how a decision approving the Joint Petition will impose a greater burden on

landowner’s property rights, effectively authorizing a second taking without additional

compensation.

4. Public versus Private

Alluded to earlier during the discussion of the benefits and costs of Joint

Petitioners’ proposal is the question of whether the alleged need is that of the public or of

a few individuals. In the past the Commission has recognized that “[w]hatever basis a

petitioner chooses for demonstrating a public need, the need must be for the public, not

for the few. And the Commission must weigh the evidence presented by the petitioner

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that there exists a public need against the evidence other parties presented that no such

public need exists.” (Docket No 96-0145, 1997 Ill. PUC LEXIS 255, *35-36) The quoted

language comes from the Commission’s aforementioned Lakehead decision, wherein the

Commission rejected the ALJ’s recommendation to grant Lakehead its requested relief

and instead supported the extensive analysis of Staff concluding that Lakehead had not

met its burden. The Order denying Lakehead’s petition stated:

The Commission agrees with Staff that the public need, like the public convenience and necessity, "required to support an order of the Commission is that of the public and not of any individual or number of individuals". Roy v. Ill. Commerce Commission, 322 Ill. 452, 458 (1926). The public, as indicated by the court, is greater than a limited number of market players. While it may be in Lakehead's own best interest that the proposed pipeline be built, that does not establish a public need. (1997 Ill. PUC LEXIS 255, *34)

The Commission noted as well that “the general concept of analyzing the appropriate

market and other providers in that market, and not just the pipeline itself, should be a

guiding principle in determining public need.” (1997 Ill. PUC LEXIS 255, 34)

In discussing Lakehead’s showing of benefits, which is remarkably similar to Joint

Petitioners’ showing of benefits in the docket at hand, the Commission concluded:

We agree with Staff's analysis, in this case, that public need is based upon the demand for refined petroleum products and not only crude oil per se. Lakehead was unable to show positive price effects on the market for petroleum products, nor future public demand that would indicate the need for this proposed pipeline. (1997 Ill. PUC LEXIS 255, *37-38)

In the present docket, although Staff conducted no analysis, SOIL-SC-WK evaluated Joint

Petitioners’ claims of need and found them grossly wanting. Other than general

references to the public using petroleum products (see, for example, Dakota Access-

ETCO Ex. 4.0, lines 91-96), Joint Petitioners have failed to show any positive price effects

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on the market for petroleum products. In fact, as reflected in SOIL-SC Ex. 7.2, Joint

Petitioners deny that implementation of their capacity optimization plan will have any

impact on prices the public pays for petroleum products. With regard to “future public

demand,” Joint Petitioners second expansion open season has essentially failed (Tr. at

392), SOIL-SC witness David Hughes explains why Bakken crude is unlikely to be

available to ship anyway (SOIL-SC Ex. 8.0, lines 99-106), and Joint Petitioners offer

nothing more than general expectations that refineries will increase capacity in the future

because they have in the past. (Dakota Access-ETCO Ex. 5.2, lines 46-49)

In language which is also prescient of the current situation, the Commission

discussed the handful of customers Lakehead intended to serve under its proposal. By

simply changing the reference to “Lakehead” to “Joint Petitioners” and number of

customers from three to six, the following language from the Commission’s Lakehead

Order could be used in an order in this proceeding:

The Commission has carefully reviewed the record in this case and has determined that Lakehead has not shown a public need for this proposed pipeline. The Commission is charged with protecting the interests of the public and must always weigh the interests of private companies with the public's interest. In this case a private company has asked the Commission to determine that its needs and the needs of three of its customers constitute a public need. It is difficult to reconcile that definition of public with the court's statement that "the convenience and necessity required to support an order of the commission is that of the public and not of any individual or number of individuals." Roy v. Ill. Commerce Commission, 322 Ill. 452, 458 (1926). We believe that the public is not and cannot be defined as a limited number of private interests. If we were to accept this definition, the role of the Commission under Article 15 would be merely to recognize that a private interest is fit, willing and able to build a pipeline and its customers want the product of that pipeline. This would require virtually no judgment on the part of the Commission and would relinquish the Commission's prudent control over the pipelines that wish to enter this state. (1997 Ill. PUC LEXIS 255, *55-56)

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This language succinctly describes the Commission’s obligations and provides a

roadmap for evaluating the public need for Joint Petitioners’ proposal in this docket.

Amazingly, the similarities and applicability of the Commission’s analysis in

Lakehead continue. Mr. Hughes explains that existing take-away capacity from the

Bakken region exceeds the additional throughput Joint Petitioners claim is needed to

serve the public. (SOIL-SC Ex. 8.0, lines 66-76) The Commission considered the

availability of other transportation options in Lakehead as well and concluded that the

failure to consider other options was another shortcoming in the company’s arguments.

Again, by simply replacing “Lakehead” with “Joint Petitioners,” much of the following

language could be used in an order in this docket denying the Joint Petition:

We also cannot accept the argument that Lakehead's system is the only relevant system to address in determining public need. The Company did not do an analysis, economic or engineering, of the relevant supply sources of the market. The Company simply stated that demand is growing and it wanted to supply that demand. The Company failed to show any evidence that relevant supply sources (not just Lakehead's system) could not meet current and foreseeable future demand in this region. There is no evidence that future demand in the region dictates the necessity of a new pipeline other than speculative statements from the Company. Staff even attempted to do this analysis, in a more rigorous manner, and could not support the contention that a new pipeline was needed in this market to meet any alleged future capacity shortfalls. In fact, Lakehead's own witnesses from the refiners could not identify any sort of current or future capacity shortfall on any system except Lakehead's. Knowing this, one may ask why a company would invest such a sum of money to put in a pipeline. One possible explanation is the conquest of market share. While obtaining market share may be beneficial to the Company, it is not a public need, it is a private goal. (1997 Ill. PUC LEXIS 255, *56-57)

Like Lakehead, Joint Petitioners have simply stated their belief that demand is growing

and they want to supply that demand (Dakota Access-ETCO Ex. 1.0, lines 110-116), but

they have provided no analysis that current transportation options could not meet the

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demand. Likewise, Staff has not offered any such analysis. Mr. Hughes is the only

witness who investigated whether current capacity is sufficient to meet future demand for

crude oil transportation. The conquest of market share, while beneficial to Joint

Petitioners, is not a public need, it is a private goal.

Not liking to be told “no” by the Commission, Lakehead appealed the

Commission’s Order in Docket No. 96-0145. The appellate court affirmed the

Commission in every respect. (Lakehead Pipeline Co., Ltd. Pshp. v. Ill. Commerce

Comm'n, 296 Ill. App. 3d 942 (1998)) (“Lakehead Pipeline”) With regard to who to

consider in determining public need, the appellate court stated:

For direction in determining what group should be considered when investigating public need, the Commission turned to the Supreme Court's decision in Roy v. Illinois Commerce Comm'n, 322 Ill. 452, 153 N.E. 648 (1926). In the context of discussing public necessity and convenience, the Roy court stated that the "convenience and necessity required to support an order of the commission is that of the public and not any individuals or number of individuals." Roy, 322 Ill. at 458, 153 N.E. at 648. The Commission adopted this same approach in this case, determining that the public is larger than a limited number of market players and the need of a few refiners does not in and of itself establish a public need. A public need, in the Commission's opinion, cannot be defined as involving only a limited number of private interests.

We can find no fault with this reasoning which takes into account the public as a whole. (Lakehead Pipeline, 296 Ill. App. 3d at 954-55)

The appellate court went on to state:

In the context of public need, it is appropriate to look at the larger group of the general public to see if it requires the service, not whether some components of the public are in fact using the service. Only by looking to the public at large can one determine whether there is an actual existing or expected popular need for the proposed service which should not be denied. This broader understanding of public has been consistently employed by our courts. Thompson v. Illinois Commerce Comm'n, 1 Ill. 2d 350, 115 N.E.2d 622 (1953); Illinois Highway Transportation Co. v. Illinois Commerce Comm'n, 404 Ill. 610, 90 N.E.2d 86 (1950); Illinois Central R.R. Co. v. Illinois Commerce Comm'n, 395 Ill. 303, 70 N.E.2d 64 (1946);

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Chicago Rys. Co. v. Commerce Comm'n, 336 Ill. 51, 167 N.E. 840 (1929); West Suburban Transportation Co. v. Chicago and West Towns Ry. Co., 309 Ill. 87, 140 N.E. 56 (1923). (Lakehead Pipeline, 296 Ill. App. 3d 942, 955)

Clearly the Commission should consider in this docket who would actually benefit from

Joint Petitioners’ proposed capacity optimization plan. With only six shippers offering to

use a portion of the additional capacity Joint Petitioners seek to implement (and no

prospect for that number growing) and enough existing take-away capacity in the Bakken

region to transport substantially more crude than Joint Petitioners seek to transport, it is

easy for the Commission to conclude that the benefits of this proposal will go to a few

private companies, Joint Petitioners, and Joint Petitioners’ parents.

If any doubt remains as to the need for the proposed capacity expansion, Joint

Petitioners’ witness Makholm provided clarification under cross-examination. When

asked whether shippers “need” to ship crude oil from North Dakota to Texas, he corrected

counsel as follows:

[Counsel for SOIL-SC] So when--so when you look at the shipper's need-- [Dr. Makholm] Shipper's desire. [Counsel for SOIL-SC] --shipper's desires, you know, to ship oil from Williston Basin to markets, …. (Tr. at 515)

Joint Petitioners’ own witness recognizes that shippers do not “need” to use Joint

Petitioners’ pipelines, they “desire” to do so.

5. A Net Burden on the Public An objective evaluation of the alleged benefits and demonstrable burdens to the

public produces an outcome that clearly weights against the granting of the Joint Petition.

The limited number of beneficiaries (six shippers and Joint Petitioners and their parent

companies) seek profit for themselves while the externalized costs are borne by the public

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at large, which by Joint Petitioners’ admission will see no measurable benefit. Such

private gain at the expense of the public conflicts with both the Commission’s and the

appellate court’s conclusions related to Lakehead.

H. Conclusion on Public Need The entire premise of Joint Petitioners’ claim of public need is that six shippers

accepted Joint Petitioners’ offer to transport crude oil. They provided no evidence of a

lack of transportation capacity in the market (other than their own). They provided no

evidence of any discernible benefit to any Illinoisans, let alone any American, other than

six shippers and themselves, and in fact appear to be focusing their efforts on serving

foreign needs for crude oil. The production forecasts relined upon by Joint Petitioners

are glaringly limited and incomplete. They ignore their own admitted inability to detect

leaks and resent any questioning of their safety measures related to surge overpressure.

Joint Petitioners refuse to acknowledge any cost or burden to the public. While the list

could continue, it is clear from these facts alone that Joint Petitioners have failed to meet

their burden of demonstrating public need. Joint Petitioners’ arguments, as well as Staff’s

support for the Joint Petition, conflict with years of past Commission orders and caselaw.

The only legally sustainable outcome is to conclude that Joint Petitioners have not

demonstrated a public need for the capacity optimization plan.

V. DESIGN, ENGINEERING, AND OPERATIONS A facility would not be necessary under Section 8-503 if it was unreliable or unsafe.

Similarly, under Section 15-401, an unreliable or unsafe facility or service would not be

needed by the public or required by the public convenience and necessity, and an

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applicant would not be deemed fit and able to provide a service that was unreliable or

unsafe.

In their direct testimony, Joint Petitioners’ witnesses Frey and Stamm described

some of the design, engineering, operational, and safety aspects of the pipelines with the

addition of the proposed pumping facilities and increased throughput. (Dakota Access–

ETCO Ex. 2.0 (Frey) and Ex. 3.0 (Stamm)) Nothing in the record shows that when Joint

Petitioners designed and built the pipelines, and integrated the newly built portion of the

ETCO pipeline with the older natural gas pipeline, they contemplated any greater oil

throughput volume than 570,000 bpd. To reiterate, nothing in Docket Nos. 14-0754, 14-

0755, or 19-0673 indicates that the pipelines were designed with a near doubling of the

planned capacity in mind.

As Mr. Stamm described, the pipelines are and will continue to be monitored and

controlled remotely from a Control Center Console located in Houston, Texas. Mr. Stamm

stated further that operating and maintenance personnel will be stationed at or near the

proposed new pumping stations in Hancock County and Massac County, Illinois, and that

personnel are stationed at or near the Patoka, Illinois terminal. (Dakota Access-ETCO

Ex. 3.0, lines 64-79)

Mr. Stamm next described how he believes Joint Petitioners will be able to

transport greater crude oil volumes “within the specifications of the original as-built

design.” He represented that existing MOP will remain unchanged while using existing

operating controls, operating the existing pumping capacity, using drag reducing agent

(“DRA”) (to reduce friction loss), and adding and operating the additional pumping

capacity, both in Illinois and other states. Together, according to Joint Petitioners, these

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items would support an increase in daily throughput from 570,000 bpd to 1,100,000 bpd.

(Dakota Access-ETCO Ex. 3.0, lines 80-99)

Staff witness Brett Seagle stated in his direct testimony that he reviewed the Joint

Petition, exhibits, Joint Petitioners’ direct testimony, and discovery responses. Based on

that review, Mr. Seagle concluded he saw no reason to oppose Joint Petitioners’ request.

(Staff Ex. 1.0, lines 41-50) He noted in support that, in response to a data request, Joint

Petitioners said that they performed hydraulic modeling to determine the optimum

pumping capacity, which he stated enabled them to avoid locating the pumping stations

in high consequence areas and environmentally or culturally sensitive areas. (Id., lines

174-178)

SOIL-SC presented the testimony of Richard Kuprewicz, the President of

Accufacts Inc., for the purpose of reviewing potential adverse effects of increasing the

crude oil flow capacity resulting from the addition of pumping stations and equipment and

introducing a DRA on the DA Pipeline and ETCO Pipeline within the state of Illinois. As

Mr. Kuprewicz stated, “Accufacts provides pipeline safety expertise in gas and liquid

pipeline investigation, auditing, risk management, siting, construction, design, operation,

maintenance, training, Supervisory Control and Data Acquisition, leak detection,

management review, emergency response, and regulatory development and

compliance.” (SOIL-SC Ex. 2.0, lines 7-11) Mr. Kuprewicz provides “independent

consulting services and expert advice on pipeline matters.” (Id., lines 312-13) He has

experience in helping develop PHMSA’s federal regulations for liquid and gas

transmission integrity management, as well as safety regulations for distribution pipelines.

With over 46 years of experience, Mr. Kuprewicz understands state and federal pipeline

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safety regulation. He has been involved in many pipeline failure investigations. (Id. lines

18-35) Mr. Kuprewicz is experienced in providing pipeline-related expert testimony in

proceedings before regulatory bodies. (Id., line 46-65) Mr. Kuprewicz’ substantial

experience and credentials are directly relevant to Joint Petitioners’ proposed pipeline

modifications and uniquely qualify him to review and critique the proposed capacity

expansion project.

SOIL-SC-WK summarized portions of Mr. Kuprewicz’ testimony in Section

IV.G.3.a. of this Initial Brief (discussing the increased risk of releases as a burden of the

Joint Petitioners’ proposal). Some of the content of that section of the Initial Brief will

appear again this section, but given the importance of the subject of his testimony,

reiterating the evidence he presented is appropriate. SOIL-SC-WK will focus here on

those portions of Mr. Kuprewicz’ testimony that they deem to be most important.

A. Surge Overpressure After reviewing Joint Petitioners’ direct testimony and related information

pertaining to their proposal to increase their pipeline capacity to 1,100,000 bpd, Mr.

Kuprewicz expressed his major areas of concern. (Id., lines 94-108) Included in his list

of concerns were (i) not having been provided (despite being requested in discovery) a

pipeline system map showing approximate locations of pump stations and mainline

valves, and (ii) the high potential for surge over-pressures exceeding 110% of MOP at

what he termed the extremely high actual flow velocities resulting from the increased

capacity. (Id.) Mr. Kuprewicz calculated that the liquid flow velocity will exceed 15

feet/second, which he stated is extreme for crude oil pipelines, and which significantly

increases the risk of surge pressure increases. (Id., lines 150-155) He explained that

96

surge “is the change in pressure in liquid pipelines caused by a major change in flow,

such as a pump shutdown/startup or inadvertent remotely operated mainline valve

closure (a not uncommon occurrence on a hazardous liquid transmission pipeline). Surge

pressure increases occur within large diameter liquid hydrocarbon pipelines in

microseconds and can move up and down many miles along a pipeline system at slightly

under one mile per second.” (Id., lines 155-161)

Mr. Kuprewicz also expressed concerns about the DRA included in Joint

Petitioners’ plans, based on his considerable operational experience with DRA injection

on crude oil pipelines. He stated that, while the use of DRA can permit higher flow rates

for a given addition of pumping horsepower, it can further increase the risk of surge

resulting from the higher flow velocities. In addition, loss of DRA effectiveness can affect

surge pressures. (Id., lines 162-169)

Mr. Kuprewicz translated this increased flow velocity and surge overpressure risk

into the tangible, practical, adverse impacts such factors could have on the Illinois portion

of the pipelines. Two such impacts exist. First, the risks of pipeline rupture and oil spill

will increase significantly compared to the pipeline’s existing capacity (which was the

capacity described to the Commission in Docket Nos. 14-0754 and 14-0755). Second, in

the event of a rupture, the volume of oil released compared to a rupture occurring today

would be significantly greater. (Id., lines 377-388)

Mr. Kuprewicz noted that Joint Petitioners stated that as designed the pipelines’

mainline valves can be controlled, and will be operated, remotely. (Id., lines 190-191)

According to Mr. Kuprewicz, remotely operated mainline valving is subject to being

inadvertently closed and must be designed carefully to prevent overpressure. He urged

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Joint Petitioners to provide sufficient mainline valve design detail to protect against

overpressure, such that it can be independently verified that, at the higher flow rate, surge

pressure will not exceed 110% MOP. Given the high liquid velocities, Mr. Kuprewicz does

not believe pump station relief valves are adequate to prevent surge overpressures on

the mainline pipelines, and that additional safety equipment is likely needed. (Id., lines

198-204)

In his rebuttal testimony (SOIL-SC Ex. 5.0), following the submission of Joint

Petitioners’ rebuttal testimony which included responses to Mr. Kuprewicz’s direct

testimony, Mr. Kuprewicz continued to have concerns regarding the design, operational,

and safety aspects of the proposed additional pumping facilities. The surge protection

system for this high flow rate, where surge is a very real risk, appears not to be failsafe

to prevent overpressure in excess of 110 % MOP. He stated that additional information

is needed from Fluid Flow Consultants (“FFC”), the entity hired to conduct the surge

analysis on the DA and ETCO pipelines. The missing information relates to whether the

***CONFIDENTIAL xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx CONFIDENTIAL***

anywhere on the system. Joint Petitioners’ proposed configuration, under the FFC surge

analysis, only protects against surge overpressure as long as ***CONFIDENTIAL xxx

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx CONFIDENTIAL*** (Id., lines 58-

73) Mr. Kuprewicz is very concerned because he does not view this as failsafe. He states

further that the complexity/complications associated with communication (such as

satellite or cellular networks) is not failsafe. In addition, software programing in complex

SCADA systems is not considered a failsafe protection against surge overpressure, such

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as are the mechanical SRVs proposed at the pump stations for some causes of surge.

(Id., lines 75-80) According to the Facility Response Plans (“FRPs”), communication

***CONFIDENTIAL xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx





xxxxxxxxxxxxxxxxxxxxxxx CONFIDENTIAL*** Continuing, Mr. Kuprewicz stated that the

surge reports are unclear whether any inadvertent mainline valve closure cannot generate

surge overpressure ***CONFIDENTIAL xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx


xxxxx. CONFIDENTIAL*** (Id., lines 80-114) He added that the surge analysis tables

(part of Dakota Access-ETCO Ex. 7.3) apparently attempting to address the 1,100,000

bpd cases with ***CONFIDENTIAL xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

xxxxxxxxxxxxxxxx CONFIDENTIAL*** are not clear. He suggested these critically

important protections and their ability to failsafe protect against surge overpressure,

especially mainline valve closure, need to be clarified by FFC. (Id., lines 114-119)

Mr. Kuprewicz observed that Joint Petitioners’ witness Dr. Hein indicated that he

conducted his surge analysis with the intent of limiting operating pressure due to surges

to 105% of MOP rather than to 110% of MOP as provided for in PHMSA regulations.

(Dakota Access-ETCO Ex. 7.0, lines 48-51). (Id., lines 120-125) He termed that a false

sense of assurance that surge risks have been accounted for. If the safety approaches

are not failsafe, overpressures can quickly far exceed 110% MOP to a pressure level that

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would likely cause the pipeline to rupture. (Id., lines 125-131) “This is just one reason

that federal pipeline safety regulations (citation in testimony omitted) setting minimum

pipeline safety standards require that pipeline operating manuals address an abnormal

condition related to “unintended closure of valves or shutdowns.”’ (Id., lines 132-135)

Relying on a control room operator to fix the problem is insufficient, according to

Mr. Kuprewicz. The experience of being in a pipeline control room while a control center

operator tries and fails to stop a mainline valve that is unexpectantly closing on its own

makes it obvious why failsafe protection on a pipeline moving at high velocities is

necessary to prevent surge overpressure. (Id., lines 135-139)

Mr. Kuprewicz next commented on the valve design. “A ***CONFIDENTIAL xxxx

CONFIDENTIAL*** valve’s valve flow coefficient (“CV”) curve (flow value versus percent

stem travel, or valve opening) will show that ***CONFIDENTIAL xxxx CONFIDENTIAL***

valves can be especially susceptible to generating surge overpressure, especially on a

pipeline operating at excessively high actual flow velocities….” (Id., lines 141-147) Based

on his own analysis, Mr. Kuprewicz concluded that such a valve type can contribute to

surge overpressure “given this type of valve’s potential to dramatically reduce flow (i.e.

greater change in CV or flow) with minor changes in valve opening or travel.” (Id., lines

154-156)

Mr. Kuprewicz then commented further on surge potential. He stated that SRVs

are special fast acting overpressure protection devices that can actually contribute to

mainline surge overpressure. He stated that he has observed rapid overpressures in

mainline pipelines in microseconds if SRVs are not properly installed, designed,

calibrated, and maintained. Mr. Kuprewicz recommended that Joint Petitioners

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incorporate into the relief valve installations the guidance contained in America Petroleum

Institute (“API”) Standards 520 and 521, as these standards help protect against improper

installation. (Id., lines 168-176)

Mr. Kuprewicz further addressed the potential adverse effects of injecting DRA into

the pipelines, which is a component of Joint Petitioners’ plans to increase oil volume

throughput. His experience with DRA in crude oil systems is that the material does not

take shear well and its effects can disappear quickly. If the DRA breaks down, a pipeline

may experience a large volume of crude oil slowing down very quickly. A fast change

from the high velocity Joint Petitioners plan to a significantly lower velocity can lead to a

dangerous situation. (Id., lines 177-193)

During the evidentiary hearings, SOIL-SC-WK counsel cross-examined several

Joint Petitioner witnesses who had provided testimony in rebuttal of Mr. Kuprewicz. The

cross exposed several important items of information about the design, engineering,

operations, and safety of the pipelines following, if approved, the proposed capacity

expansion plans. The following portion of this Initial Brief highlights portions of the cross-

examination, organized by Joint Petitioner witness.

Stamm

Mr. Stamm was asked about PHMSA’s role pertaining to Joint Petitioners’

proposal. He acknowledged that a PHMSA permit or approval is not required for the

project (Tr. at 215-16)

Frey

Mr. Frey admitted that (conservatively) setting the limit for the surge analysis at

105% MOP, instead of 110%, is meaningless if the safety features called for do not work.

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(Tr. at 237) At Energy Transfer’s control center in Houston, a single operator is

responsible for monitoring the entire DA-ETCO pipeline, from North Dakota to Texas. (Tr.

at 240) The operator in Texas controls the equipment located along the pipeline in Illinois

remotely, via cellular communication, with satellite backup. (Tr. at 244) While mainline

valves have backup battery power for communications, commercial (utility) power is

required to actuate (open or close) a valve. (Tr. at 245) While a loss of communication is

“pretty rare,” it “can happen.” (Tr. at 245-46)

Mr. Frey was questioned about Mr. Kuprewicz’ frustration over Joint Petitioners

having failed to provide him with detailed pipeline maps showing certain facilities and

information by milepost. First, Mr. Frey acknowledged that the United States map Joint

Petitioners provided does not display sufficiently detailed distances and other information.

(Tr. at 251-54) Next, Mr. Frey was referred to the maps attached to his direct testimony

as Exhibits 2.2 and 2.3. He admitted that neither map designates mileposts. (Tr. at 254-

55) After attempting to describe how Mr. Kuprewicz may have been able to construct his

own milepost map from various other documents, Mr. Frey hesitatingly admitted, “We

have mapping, and we have our GIS system where we have the mileposts identified, and

we have the maps done electronically.” (Tr. at 257) When asked why, if he had the map,

he did not provide it, Mr. Frey testified, “It was available in a variety of locations including

elsewhere in the surge report.” The next question and answer followed. “Q. You just felt,

by spreading the information around, that was responsive enough? A. We felt like we had

provided the information that was requested.” (Tr. at 257)

***CONFIDENTIAL xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx


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xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx CONFIDENTIAL***

Hein

Dr. Hein founded FFC, and was commissioned by Joint Petitioners to perform a

surge analysis for the DA Pipeline and ETCO Pipeline. His report on the proposed

capacity expansion was provided as Dakota Access-ETCO Ex. 7.3. ***CONFIDENTIAL











xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx CONFIDENTIAL*** Dr. Hein

acknowledged at the hearing that, for the pipelines to operate safely at the higher

proposed throughput levels, the additional safety equipment he recommended must be

installed and be working properly. (Tr. at 286) The PLC and SCADA systems used for

the pipeline’s communication and operation rely on software. (Tr. at 287-88) On his

Company’s web site, a sentence in red type reads, “If you have one of our older – more

than a year old – programs, you should upgrade as we have made many improvements,

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added new features, fixed bugs, et cetera.” (Tr. at 289) Dr. Hein acknowledged that

software can have bugs, including PLC software. (Tr. at 290) ***CONFIDENTIAL xxxxzz









xxxxxxxxxxxxxxxxxx CONFIDENTIAL*** (Tr. at 302)

***CONFIDENTIAL xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx









xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx. CONFIDENTIAL***

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B. Specpoint Break

Mr. Kuprewicz also expressed concerns over the pipeline “spec break” where a

newer portion of the ETCO Pipeline south of Patoka rated at 1,440 psig MOP joins the

older, repurposed natural gas segment of the ETCO Pipeline rated at 900 psig MOP. He

advises that the Commission should be sure that failsafe field installation equipment is in

place to prevent overpressure from the planned upgraded Patoka pump station. (Id., lines

372-377) Overall, Mr. Kuprewicz believes Joint Petitioners do not adequately appreciate

the risks associated with surge overpressure and the importance of failsafe protection.

***CONFIDENTIAL xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx







xxxxxx CONFIDENTIAL*** (Tr. at 308-13)

Mr. Godfrey was asked about the portion of his testimony pertaining to spec break,

and FFC’s recommendations; specifically, how the decrease in pressure to 900 psig at

the spec break is accomplished. (Tr. at 357-58) In a non-steady state, or transient

condition, so long as the systems and protections function, the pressure should remain

below 900 psig at the spec break. (Tr. at 359-60)

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C. The Questionable Record of Joint Petitioners’ Operator As discussed above in the context of the burden imposed on the public by the

increased risk of release associated with Joint Petitioners’ proposal, releases due to

corrosion should be of concern to the Commission. Monitoring, mitigating, and avoiding

releases due to corrosion are the responsibility of the operator of a pipeline. At paragraph

8 of the Joint Petition, Joint Petitioners identify the operator of their respective pipelines

as DAPL-ETCO Operations Management, LLC, an indirect subsidiary of Energy Transfer.

The significance of this is that it is not entirely accurate. According to Joint Petitioners’

FRPs, DAPL-ETCO Operations Management, LLC has appointed Sunoco Pipeline L.P.

(“Sunoco Pipeline”) as the operator of Joint Petitioners’ pipelines. (SOIL-SC Ex. 4.0, lines

523-525) Prior to obtaining the FRPs (which meant overcoming Joint Petitioners’ multiple

objections), Sunoco Pipeline’s involvement with Joint Petitioners’ pipelines was not

reflected in Joint Petitioners’ submissions.22

Sunoco Pipeline’s operation of Joint Petitioners’ pipelines should be of particular

concern to the Commission. Of the ***CONFIDENTIAL xxxxxxxxxxxxxxxxxxxxxxxxxxx








22 The obfuscation of the true operator of the pipelines is another example Joint Petitioners’ actions that cause SOIL-SC-WK to question many of Joint Petitioners’ statements in this docket.

106



xxxxxxxxxxxxxxxxxxxxxx CONFIDENTIAL***

Joint Petitioners witness Todd Stamm defends the frequency of Sunoco Pipeline’s

appearance on the lists by pointing out that Sunoco Pipeline is the operator. (Dakota

Access-ETCO Ex. 3.5, lines 90-91) He asserts that under PHMSA reporting

requirements, unless there is a specifically known and identified entity that caused an

incident, the pipeline operator is always identified as the entity “who caused the leak or

loss of structural integrity.” (Id., lines 84-87) SOIL-SC-WK are well aware of this, which

is why they believe the Commission should be concerned. SOIL-SC-WK are not

suggesting that Sunoco Pipeline is responsible because it is actively causing corrosion.

Rather, because it is the operator’s responsibility to monitor for and work to prevent

pipeline failure due to corrosion, Sunoco Pipeline’s poor track record in this regard

warrants the Commission’s attention. Although the lists in SOIL-SC Exs. 4.10 and 4.11

do not reflect corrosion attributable incidents on Joint Petitioners’ pipelines at issue in this

docket, corrosion should not be expected on the segments constructed just four or five

years ago. But as noted above, SOIL-SC witness Kuprewicz noted corrosion on the older

ETCO Pipeline segments, which Sunoco Pipeline did not believe warranted concern.

Before allowing Joint Petitioners to nearly double throughput, however, the Commission

should give serious consideration to Sunoco Pipeline’s history as an operator.

Notably, when confronted with Sunoco Pipeline’s track record, Joint Petitioners

attempted to distance themselves from that history. Mr. Stamm acknowledged that

Energy Transfer became a general partner of Sunoco Logistics Partners, L.P. in 2012,

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but characterized Energy Transfer and Sunoco as “independent, separately operated

companies until April 2017.” (Dakota Access-ETCO Ex. 3.5, lines 96-98) This description

is not accurate. As reflected in paragraph 5 of the verified March 13, 2020 Petition for

Interlocutory Review of SOIL and SC, the Sunoco family of companies became part of

the Energy Transfer family beginning in October 2012. On October 5, 2012, Energy

Transfer Partners, L.P. (“ETP”) and Sunoco, Inc. announced the successful completion

of their previously announced merger of a wholly owned subsidiary of ETP, with and into

Sunoco, Inc., with Sunoco, Inc. surviving the merger as a subsidiary of ETP. Sunoco

L.P.’s own website identifies 2012 as the year Energy Transfer acquired Sunoco, Inc. A

subsequent intracorporate merger occurred in April 2017 consolidating the ownership

structure. Joint Petitioners did not disagree with this description of the ownership in their

March 20, 2020 Answer to SOIL-SC’s March 13, 2020 Petition for Interlocutory Review.

Any attempt by Joint Petitioners to distance themselves from Sunoco Pipeline’s track

record is disingenuous.

Mr. Stamm also attempts to portray the pattern of leaks and failures as acceptable

consequences of Joint Petitioners’ enterprise. He downplays the incidents on SOIL-SC

Exs. 4.10 and 4.11. To hear Mr. Stamm testify, if a release of oil occurs on Joint

Petitioners’ property or only costs tens of thousands of dollars to remediate, it does not

count. (Dakota Access-ETCO Ex. 3.5, lines 100-114) In light of this view, the question

for Joint Petitioners is how bad does Sunoco Pipeline’s operations have to be before it is

a concern?

In addition, SOIL-SC-WK are not the only ones concerned about the operator’s

track record. In the March 25, 2020 Standing Rock Decision, among the reasons that the

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court ordered the USACE to prepare an EIS is that the USACE failed to consider Sunoco

Pipeline’s safety record. The court observed that a “valid risk analysis would recognize

the history of the operator, but that didn't happen here.” (2020 U.S. Dist. LEXIS 51540,

*33) The court proceeded to state, “In this case, the operator's history did not inspire

confidence: ‘PHMSA data shows Sunoco has experienced 276 incidents resulting in over

$53 million in property damage from 2006-2016,’ which one expert described as ‘one of

the lower performing safety records of any operator in the industry for spills and releases.’

Holmstrom Decl., ¶ 9.” (2020 U.S. Dist. LEXIS 51540, *34) In determining whether

Sunoco Pipeline is up to the task of managing nearly twice the throughput on Joint

Petitioners’ pipelines, the Commission would be well within its bounds to consider Sunoco

Pipeline’s track record and should do so.23

D. Inadequate Leak Detection and Response Time SOIL-SC-WK discussed the inadequacy of Joint Petitioners’ leak detection system

above in the context of the balancing of costs and benefits to the public (or more

specifically, Joint Petitioners’ failure to consider any costs associated with its project).

Nevertheless, Joint Petitioners’ leak detection system warrants revisiting in the discussion

of Joint Petitioners’ operations. SOIL-SC witness Richard Kuprewicz expresses concern

over Joint Petitioners (in)ability to detect and respond to releases in a reasonable amount

of time. Given the higher volumes Joint Petitioners propose to transport and the higher

23 SOIL-SC-WK recognize that a majority of the Commission determined on April 1, 2020 not to allow cross-examination of Joint Petitioners’ witnesses on Sunoco Pipeline’s track record. The filings preceding that determination were made prior to the Standing Rock Decision. With the knowledge of the Standing Rock Decision, SOIL-SC-WK encourage the full Commission to reflect on the lack of a complete record in this matter concerning Sunoco Pipeline’s record.

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velocities discussed above, it is important for the Commission to understand how

implementation of Joint Petitioners’ proposal would impact inevitable releases.

To begin with, Mr. Kuprewicz maintains that the Commission should understand

that Joint Petitioners’ leak detection system claim of being able to detect leaks is in all

probability unrealistic based on his extensive experience in investigating pipeline releases

and his working knowledge of pipeline release detection systems. He asserts that it is

challenging enough for “state of the art” release detection systems to remotely and timely

identify rupture releases, and almost impossible for such systems to reliably identify the

much harder to spot lower rate “leak” releases. Leak detection claims for small opening

releases (such as pitting or punctures), even on well-monitored systems, are often

overstated. The reality demonstrated time and time again, is that such remote leak

detection approaches are very difficult and challenging. Most leaks are not determined

by remote detection, but by field observations of hydrocarbon releases where the amount

of oil released can be considerable before its discovery. The 1% variation described in

SOIL-SC Ex. 4.13 does not reflect Mr. Kuprewicz’s experience and many others’

observations that while CPM systems may meet PHMSA’s regulations for leak detection,

meeting regulation and working reliably are two very different objectives. (SOIL-SC Ex.

2.0, lines 307-324)

As noted, Joint Petitioners openly acknowledge that they cannot detect leaks less

than 1% of the throughput on the pipelines. (SOIL-SC Ex. 4.13) This means, by Joint

Petitioners’ own calculation, that at a flow rate of 1,100,000 bpd, in one hour 458 barrels

of crude oil can escape undetected. Even at the current throughput of 570,000 bpd, Joint

Petitioners’ witness Todd Stamm acknowledges that 237.5 barrels could escape over one

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hour without detection. (Dakota Access-ETCO Ex. 3.5, lines 43-46) With regard to

landowner intervenor William Klingele’s concern with leaks (see generally Klingele Exs.

2.0 and 2.1) and his observation that leaked oil can rise to the surface and contaminate

farmland, Mr. Stamm responds, “Whether leaked crude oil will rise to the surface, and if

so within what time period, in a leak at a particular location, will depend on a number of

site-specific conditions including soil and rock type and condition at the location, pipeline

burial depth, elevation, surface gradient, and other factors.” (Dakota Access-ETCO Ex.

3.5, lines 61-65) In other words, given Joint Petitioners’ admitted inability to detect “small”

leaks (ie: leaks that can release 457 barrels, or over 19,000 gallons, in one hour ), such

a leak could continue for hours (days?) undetected by Sunoco Pipeline or anyone at the

site if the crude does not rise to the surface due to the circumstances at the site of the

leak. Not in the least bit reassuring is Mr. Stamm’s offer that the probability of detecting

a small leak “will increase as the volume imbalances increase.” (Id., line 157) Joint

Petitioners have not indicated how much time need pass before a volume imbalance is

detectable. Joint Petitioners’ lack of concern over these undisputed facts is shocking. As

with Sunoco Pipeline’s operation track record, apparently this level of risk to others and

their property is acceptable to Joint Petitioners and their owners.

The Standing Rock court, however, did not agree. Rather than accept attempts to

gloss over the concerns with detecting both small and large leaks, the court could not find

that the USACE adequately disposed of those concerns. With regard to the claim that a

small leak would eventually be detected, the court observed:

Its further response that a less-than-1% leak would eventually be detected over an unspecified "period of time" after building up enough to cause a meter imbalance, id., was less than reassuring given that the amount of

111

undetected leaking oil could be as much as 6,000 barrels per day.24 See RAR 7683. Indeed, one of the experts noted that Sunoco had experienced a spill of 8,600 barrels on one of its pipelines when it had not recognized a leak even when there was an "imbalance indication[]" because that imbalance did not exceed "established normal operating tolerances." RAR 7491 (quoting PHMSA report of the incident). (2020 U.S. Dist. LEXIS 51540, *31

The USACE’s failure to consider Joint Petitioners’ leak detection system was another

reason that the court directed the preparation of an EIS and will consider whether to order

the shutdown of the DA Pipeline in the meantime.

Joint Petitioners’ admission that it cannot detect small leaks, which can continue

for an unknown amount of time, is inconsistent with the requirement that they be fit, willing,

and able to provide service and that the project is in the public interest or necessary to

promote the security or convenience of the public. The absence of evidence on Joint

Petitioners’ leak detection failure when the Commission granted Joint Petitioners authority

under Sections 15-401 and 8-503 in Docket Nos. 14-0754 and 14-0755 is not a bar to the

Commission considering that evidence now. Joint Petitioners’ admitted inability to protect

the public must not be overlooked and must be taken as seriously as it was in Standing

Rock.

Once a release is detected, whether by Joint Petitioners’ leak detection system or

by the public, Mr. Kuprewicz very much doubts that Joint Petitioners’ estimated response

time of a matter of minutes is realistic. (SOIL-SC Ex. 5.0, lines 363-365) SOIL-SC-WK

note that Joint Petitioners optimistically claim that they can respond to several abnormal

operating situations in a matter of minutes. Joint Petitioners’ Standard Operating

Procedures for Recognizing and Reacting to Abnormal Operations (“SOP”) identifies the

24 This calculation appears to be based on a throughput of 570,000 bpd.

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steps to be taken when abnormal operations occur (ie: unintended valve closures,

unintended shutdown, increase or decrease of pressure or flow rate outside of normal

limits, loss of communications). The SOP has been admitted into the record as

confidential SOIL-SC Cross Ex. 2. Joint Petitioners’ witness John Godfrey discusses

situations in which a loss of communications occurs and asserts that the Sunoco Pipeline

operators are “trained to immediately bring the pipeline to a safe mode of operation.”

(Dakota Access-ETCO Ex. 8.2, lines 167-170) When questioned about the details of

doing so, both through discovery and under cross-examination, Mr. Godfrey refers to the

SOP and unavailable training documents and defers to Joint Petitioners’ operations

witness. In mentioning the SOP, he specifically refers to Section 7.4, which lists only

four steps if a loss of communications occurs using words like “evaluate” and “address

promptly.” Despite the lack of details on what exactly an operator does to bring the

pipeline back to an undefined “safe mode of operation,” Mr. Godfrey claims that an

operator can shut down an impacted pipeline segment in ***CONFIDENTIAL xxxxxxxx

CONFIDENTIAL*** minutes. (See confidential SOIL-SC Cross Ex. 3 and Tr. at 371-374)

Mr. Godfrey’s support for an operator being able to restore a “safe mode of operation”

does not reassure SOIL-SC-WK. General assurances based on general procedures are

in no way sufficient to demonstrate to the Commission that Joint Petitioners can protect

the public from abnormal conditions on the pipelines, particularly when there is no

explanation for Joint Petitioners’ rosy response times to problems, like surge

overpressure, that can occur in a fraction of second.

Because Joint Petitioners readily admit that they cannot detect “small” leaks

capable of releasing up to 458 barrels of crude in one hour and can offer only a

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rudimentary explanation of their ability to respond to operating problems within minutes,

the Commission should not find that Joint Petitioners have met their burden to

demonstrate that their proposal is in the public interest under either Section 8-503 or

Section 15-401.

VI. OTHER

A. Interstate Commerce Act Compliance

1. Applicable Statutes and Case Law

SOIL-SC-WK contend that certain agreements and practices of Joint Petitioners

violate the Interstate Commerce Act (“ICA”) (49 App. U.S.C. § 1 et seq. (2020)). SOIL-

SC-WK have raised issues, for example, questioning the legality of at least some of Joint

Petitioners’ capacity contracts under the ICA, going back to the 2014 initial and expansion

open seasons.

The ICA dates back to 1887. An instructive article published in the Cornell Law

Review in 1940 contains an early historic description of the ICA, subsequent federal

statutes and other related legislative activity, decisions of the Interstate Commerce

Commission, and decisions of the United States Supreme Court and other federal courts.

Forrest R. Black, Oil Pipe Line Divorcement by Litigation and Legislation, 25 Cornell L.

Rev. 510 (1940) (“Black” or “Black article”). The ICA and its companion statute, the Elkins

Act of 1903 (49 App. U.S.C. §§41-43 (1903)), were both designed to prevent

discrimination and rebates, but were initially limited to rail and water carriers.

The ICA provides in pertinent part:

If any common carrier subject to the provisions of this chapter shall, directly or indirectly, by any special rate, rebate, drawback, or other device, charge demand, collect, or receive from any person or persons a greater or less compensation for any service rendered or to be rendered, in the

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transportation of passengers or property, subject to the provisions of this chapter, than it charges, demands, collects, or receives from any other person or persons for doing for him or them a like and contemporaneous service in the transportation of a like kind of traffic under substantially similar circumstances and conditions, such common carrier shall be deemed guilty of unjust discrimination, which is prohibited and declared to be unlawful. (49 U.S.C. § 60502; 49 App. U.S.C. § 2 (1988))

Under the relevant portion of the Elkins Act:

[I]t shall be unlawful for any person, persons, or corporation to offer, grant, or give, or to solicit, accept, or receive any rebate, concession, or discrimination in respect to the transportation of any property in interstate or foreign commerce by any common carrier subject to said Act . . . whereby any such property shall by any device whatever be transported at a less rate than that named in the tariffs published and filed by such carrier, as is required by said Act to regulate commerce and the Acts amendatory thereof. (49 U.S.C. § 60502; 49 App. U.S.C. §§ 41(1), 43 (1988))

Courts have historically interpreted the ICA and Elkins Act broadly.

“More unequivocal language would be hard to imagine. It strikes at any and every

kind of rebate, no matter by whom or to whom given. Nowhere does the section say or

imply that rebates are unlawful only if they are given to or are for the benefit of a shipper.

It is a rebate, to whomever given, which the statutory language proscribes.” United States

v. Braverman, 373 U.S. 405, 406 (1963).

“The concessions are none the less illegal, if made for non-transportation services,

as long as they result in lowering directly or indirectly transportation costs to a shipper.

That other inducements may also have influenced the concessions is not important when

a materially effective purpose is the securing of traffic for an interstate carrier. Where

traffic is an object, and discriminatory advantage the means employed in attempting to

obtain or actually obtaining it, there is a violation of the section in respect to

transportation.” Union Pac. R.R. Co. v. United States, 313 U.S. 450, 464 (1941).

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“The all-embracing prohibition against either directly or indirectly charging less

than the published rates shows that the purpose of the statute was to make the prohibition

applicable to every method of dealing by a carrier by which the forbidden result could be

brought about.” N.Y., New Haven & Hartford R.R. Co. v. Interstate Commerce Comm’n,

200 U.S. 361, 392 (1906) (“New Haven”).

As the Black article noted, the Hepburn Act of 1906, by virtue of the Pipe Line

Amendment, extended common carrier status to oil pipelines, thus bringing them under

the ICA and the Elkins Act. (Black article at 510-511) The Hepburn Act also included the

so-called Commodities Clause, prohibiting a railroad company from transporting any

commodity which it owns in whole or in part except for its own use. It thereby divorced

production and transportation for railroads but oil pipelines were spared from the

Commodities Clause. (Id. at 511; see United States v. South Buffalo Railway Co., 333

U.S. 771 (1948)).

The presence, or absence, of the Commodities Clause, is not determinative as to

discrimination or rebate issues. The Supreme Court made that determination in 1906 as

to railroads (New Haven, supra).

In its Order in the Magellan proceeding (although still subject to rehearing after

issuance of a tolling order25) (“Magellan” or the “Magellan Order”), FERC reiterated that

“[t]he fact that the filed tariff rate was paid by the Marketing Affiliate to its pipeline is not

relevant if the entire transaction includes either direct or indirect payments back to the

shipper because the ICA prohibits any and all means or devices that result either directly

or indirectly in a rebate from the filed tariff rate.” Magellan Midstream Partners, L.P., 161

25 Order Granting Rehearings for Further Consideration, Magellan Midstream Partners, L.P., Docket No. OR17-2-001 (Jan. 22, 2018), eLibrary No. 20180122-3021.

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FERC ¶ 61,219, at 14 (2017), petition for rehearing pending (“Magellan” or the “Magellan

Order”)

SOIL-SC-WK have previously raised issues as to the legality under Magellan of

certain arrangements undertaken by Joint Petitioners. Such issues were raised in (i) the

Petition for Interlocutory Review filed December 9, 2019; (ii) the Verified Motion to

Supplement Petition for Interlocutory Review filed December 13, 2019; and (iii) the

Verified Amended Motion for Leave to Supplement Petition for Interlocutory Review filed

December 31, 2019.

Magellan concerned a petition for a declaratory order by Magellan Midstream

Partners, L.P. (“Magellan Midstream”) requesting a finding that Magellan Midstream’s

proposal to establish a marketing affiliate to buy, sell, and ship crude oil is compliant with

the ICA. Magellan Midstream subsidiaries and affiliates owned crude oil pipelines. In its

petition, Magellan Midstream stated that it wanted to establish a marketing affiliate to buy

and sell crude oil which it would ship on Magellan Midstream’s pipelines at the applicable

tariff rate. It wanted the marketing affiliate to be allowed to participate in open seasons

conducted by the pipeline affiliates. Magellan Midstream stated that the marketing

affiliate may incur a profit or a loss on the shipments, depending on how the tariff rate for

a shipment compares to the difference in price for the oil between the origin and

destination markets; but that a loss incurred by the marketing affiliate could still provide

an overall financial benefit to the integrated company. An overall profit would be realized

if the origin-destination price differential exceeds the variable cost of the shipment

(variable cost being less than the tariff rate). Magellan Midstream contended such

transactions would benefit the marketing affiliate by establishing shipping history on its

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affiliated pipeline. Magellan Midstream also stated that its marketing affiliate may partially

assign rights acquired in an open season, or enter into similar arrangements with third

parties, at rates that diverge from the committed shipper rate contained in the applicable

TSA. (Magellan Order, ¶ 4, 5)

In arguing for its compliance with the ICA, Magellan Midstream stated that, unlike

railroads, oil pipelines are not prohibited by the ICA’s Commodities Clause from shipping

products in their own name on their own pipeline. Magellan Midstream emphasized that,

like other third-party shippers, its marketing affiliate would pay the filed tariff rates when

shipping crude oil on Magellan Midstream’s pipelines. It added that no producers or

marketers would be denied pipeline access, consistent with Magellan Midstream’s

common carrier obligations.

FERC denied Magellan Midstream’s request, stating that, “taken together the

transaction’s proposed by Magellan would violate various provisions of the ICA, primarily

the ICA’s prohibition on rebates.” (Id., ¶ 11) FERC stated that the ICA permits an oil

pipeline to create a marketing affiliate (which is common-place in the industry), for that

marketing affiliate to ship on its affiliate’s pipeline, and for marketing affiliates to

participate in open seasons. (Id., ¶ 12)

Beyond the relationship and activities described above, other activities can run

afoul of the ICA and the Elkins Act. FERC in Magellan noted that the ICA prohibits a

common carrier from granting special rates or rebates to any shipper. The ICA prohibits

a carrier from charging different rates for identical service. A carrier that receives different

compensation from one shipper than it receives from another for providing like and

contemporaneous service in transporting like kind traffic under substantially similar

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circumstances and conditions is guilty of unlawful discrimination. FERC concluded its

description of the law by stating that any refund or remittance of a filed tariff rate is a

violation of the tariff. (Id., ¶ 13)

In holding that that transactions Magellan Midstream described would violate the

ICA, FERC concluded that the “fact that the filed tariff rate was paid by the [Magellan

Midstream affiliate] to its pipeline is not relevant if the entire transaction includes either

direct or indirect payments back to the shipper because the ICA prohibits any and all

means or devices that result either directly or indirectly in a rebate from the filed tariff

rate.” (Id., ¶ 14) (emphasis added) FERC noted at the outset of its order that Magellan

Midstream supported its request with the statement that “a number of its crude oil pipeline

competitors have similar marketing affiliates that buy and sell crude oil for the purpose of

shipping on their affiliates’ pipelines.” (Id., ¶ 1) (emphasis added)

In reaching its conclusions, FERC cited and relied upon, as precedent, several of

the older Supreme Court decisions in railroad cases. (Id., ¶ 14) FERC cited three cases

wherein the Court held the subject transactions violate the ICA’s prohibition against

rebates.

The first cited case was United States v. Union Stock Yards & Transit Co. of

Chicago, 226 U.S. 286 (1912). In that case a railroad operation based in Chicago

transported livestock in interstate commerce. The railroad entered into a contract with a

company in the cattle slaughtering business, agreeing to pay the company $50,000 if it

would build a plant adjacent to stock yards where the company would utilize the railroad

for transportation of the cattle and pay the regular transportation charges. The Court held

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that the contract amounted to an undue advantage given to and unlawful discrimination

in favor of the slaughter company.

The next case cited in the Magellan Order was New Haven. In that case, the

Chesapeake & Ohio Railway purchased and transported coal under contract with the New

Haven Railroad. The delivered price to New Haven was $2.75/ton. The cost of coal to

Chesapeake was $2.47/ton. The published tariff for transportation was $1.45/ton,

resulting in a loss per ton of $1.17/ton. Chesapeake was a carrier, and most of the

transportation was on its rail line. Chesapeake bore the loss arising from the difference

between the contract price, the price of the coal at the mines, the published rate to an

interim site, and the cost of transporting the coal from there to the destination.

The issue presented was as follows: may a carrier in interstate commerce contract

to both sell and transport a commodity, when the contract price does not pay the cost of

purchase, the cost of delivery, and the published freight rates? (New Haven, 200 U.S. at

390-391) The railroad carrier stated that when a carrier sells an article which it has

purchased and transports it for delivery, it is both a dealer and a carrier. The railroad

carriers then contended that, when the price for the commodity is adequate to pay the

published freight rate and something over, the statutory requirement to adhere to the

published rates is complied with, because the price will be imputed to the freight rate, and

the loss, if any, attributed to the company in its capacity as dealer, and not as a carrier.

(Id. at 397) The Supreme Court disagreed. To hold otherwise would allow the carrier who

possesses the power, by the form in which he deals, to render the prohibitions of the

statute ineffective, since it implies the right of a carrier to shut off inquiry as to the real

result of a particular transaction on the published rates, and avoiding the prohibitions of

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the statute. (Id.) The Court found that the coal company/carrier/seller bought and sold the

coal without reference to whether the net result to it would realize its published

[transportation] rates. (Id.) It is not a factor whether the carrier intended to violate the

statute, but instead whether the effect of the acts done violate those prohibitions. (Id. at

398)

The Court acknowledged that there is no express prohibition against a carrier

becoming a dealer in the commodities to be shipped in interstate commerce.26 It does

not matter that the practical effect of applying the prohibitions will be to render it difficult,

if not impossible, for a carrier to deal in commodities. That result does not relieve the

Court of its plain duty of enforcing the statutory provisions as they exist. (Id. at 399) The

Court held that the contracts in question, being contrary to public policy and in conflict

with the ICA, were void and unenforceable.

FERC in Magellan next cited Armour Packing Co. v. United States, 209 U.S. 56

(1908). Several packing houses had entered into a contract with a rail carrier to transport

product from Kansas City, Kansas to New York City at the carrier’s then tariff rate per

pound from June 17, 1905, until December 31, 1905. On August 6, the rail tariff was

amended and increased. Despite the increase, the packing house shippers insisted on

shipping their product pursuant to the lower rate contained in the contract. The packing

houses were prosecuted under the Elkins Act for obtaining from the rail carrier an unlawful

concession from the published and filed rate for a shipment made after the amended tariff

became effective. Each of the packing houses was convicted, and the circuit court of

appeals affirmed. The Supreme Court described the Elkins Act as making it unlawful for

26 The decision in this case was rendered several months prior to the effective date of the Hepburn Act’s enactment of the Commodities Clause.

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any person “to offer, grant, solicit, give, or to accept or receive, any rebate, concession,

or discrimination in respect to transportation of property in interstate or foreign commerce,

whereby any such property shall, by any device whatever, be transported for a less rate

than that published and filed by such carriers, or whereby any other advantage is given

or discrimination practised.” (Id. at 71) The Court found that Congress’ purpose was for

all shippers to be treated alike, that the only rate charged for the same service, under the

same conditions, should be the rate lawfully established and published. The Court

continued, “It is not so much the particular form by which or the motive for which this

purpose was accomplished, but the intention was to prohibit any and all means that might

be resorted to to obtain or receive concessions and rebates from the fixed rates, duly

posted and published.” (Id. at 72) The Court affirmed the judgment of the circuit court of

appeals.

The last of the railroad cases cited by the Magellan Order was United States v.

Delaware, Lachawanna, and Western R.R. Co., 238 U.S. 516 (1915). The Supreme

Court in this case interpreted and applied the Commodities Clause of the Hepburn Act to

a situation in which an owner of coal and the carrier were not the same company, but

were affiliates. The facts were that a railroad company was also authorized to mine and

sell coal. In an effort to avoid violation of the Commodities Clause, the company devised

a plan by which it would sell the coal at the mine mouth, before transporting it. The

company formed a new corporation to serve as the purchaser of the coal. The new

corporation was nearly totally owned by the same stockholders as the railroad, and the

two companies shared many of the same officers and directors, and were located in the

same offices. The railroad company continued its coal mining business, and sold the coal

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not needed for its own operations to the new coal company. The railroad company then

transported the coal it had sold to the new company to its destination. The coal company

paid the regular tariff rate for transportation. A government petition against both

companies alleged the two were practically one, and attacked the validity of the contract

between them. The government appealed from the district court’s dismissal of the

petition. The Supreme Court examined the details of the contract (Id. at 530-534) and

determined that, based on the contract terms (which the Court described in detail), along

with the relationship of the companies, the coal company was not independent. The Court

thus held the contract to be invalid, reversed the lower court decree, and directed the

lower court to enjoin the railroad from transporting any more coal sold under the subject

contract.

It is evident from the Magellan Order that FERC correctly views the ICA and Elkins

Act as equally applicable to common carrier oil pipe lines and to railroads. The Supreme

Court also decided other cases involving ways that parties attempted to get around the

ICA and Elkins Act proscriptions. In Union Pac. R.R. v. U.S., the Court held that the

railroad’s provision of certain financial and other services and support for a new food

terminal that would increase the railroad’s traffic, and revenue, amounted to illegal

rebates, concessions and discriminations under the ICA and Elkins Act. (313 U.S. at 450)

The Court found that the railroad’s motive was to divert produce traffic from other railroads

to its own. (Id. at 400-461) The Court described that, as general principles, the statutes

have been effective “to accomplish the destruction of discriminatory practices, whatever

their form. Violation of the commerce acts through receipt of advantages is to be tested

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by actual results not by intention. Any and all means to accomplish the prohibited end

are banned.” (Id. at 461-462)

The Supreme Court encountered a situation in another case where an individual

who worked for a shipper had been charged with soliciting concessions and rebates

respecting shipments of the shipper’s goods by an interstate motor carrier. (United States

v. Braverman, 373 U.S. 405 (1963)) There was no allegation that the shipper benefitted

from the rebate. The district court had dismissed an indictment brought against the

individual under the Elkins Act because any alleged advantage or discrimination in favor

of the shipper was lacking. The Supreme Court reversed, stating that the Elkins Act

outlaws solicitations of rebates by anyone, without regard to who may benefit. (Id. at 406)

Quoting portions of the statute, the Court stated that the Elkins Act “aims in unmistakable

language at preserving published tariffs inviolate.” (Id.) The Court continued, stating that

the Elkins Act goes on:

to make it unlawful ‘for any person, persons, or corporation to offer, grant, or give, or to solicit, accept, or receive any rebate, concession, or discrimination’ as to interstate shipments of property ‘whereby any such property shall by any device whatever be transported at a less rate than that named in the tariffs published and filed by such carrier …’ (Id.)

The Court characterized the statutory prohibitions in its own descriptive manner:

More unequivocal language would be hard to imagine. It strikes at any and every kind of rebate, no matter by whom or to whom given. Nowhere does the section say or imply that rebates are unlawful only if they are given to or are for the benefit of a shipper. It is a rebate, to whomever given, which the statutory language proscribes. (Id.)

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2. The Record Indicates Likely Violations

With the foregoing legal foundation in mind, SOIL-SC-WK will next review relevant

portions of the record and demonstrate how and why Energy Transfer and Joint

Petitioners have violated the ICA and the Elkins Act. SOIL-SC witness Richard Stuckey

provided testimony pertaining to the possibility of shippers affiliated with a pipeline

shipping at a loss. (SOIL-SC Ex. 4.0, lines 210-264) Mr. Stuckey compared crude oil

prices in the Bakken region to the prices at Nederland, Texas, during certain months, and

then factored in DA-ETCO tariff shipping rates. Based on these comparisons, Mr.

Stuckey found several instances of losses experienced by the shipper. (Id., lines 221-

256) The losses resulted from the crude price differential between Bakken and Nederland

during the same month being less than the tariff shipping cost. The situation Mr. Stuckey

described is similar to what Magellan Midstream described to FERC. As the case law

shows (e.g., New Haven; Magellan Order), in a transaction like that described by Mr.

Stuckey, under the ICA the law will presume that, for a shipper affiliated with the pipeline

carrier, the carrier effectively granted a discount in the transportation rate. Such a

transaction would be in violation of the ICA, including the prohibition against rebates and

discrimination.

In his surrebuttal testimony for Joint Petitioners (Dakota Access-ETCO Ex. 1.6),

Mr. Emery took issue with Mr. Stuckey’s testimony on this point. He labelled the analysis

and hypothetical transactions “incomplete and unrealistic.” (Id., lines 409-417) Further

on in his response to Mr. Stuckey, Mr. Emery termed “offensive to Petitioners” what he

contended were “unfounded and misleading implications” that Joint Petitioners’ affiliates

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were engaging in illegal or otherwise inappropriate practices and thereby artificially

inflating demand for pipeline capacity. (Id., lines 448-454) On cross-examination, Mr.

Emery was shown a document that Joint Petitioners’ parent company Energy Transfer

filed in the FERC Magellan proceeding, filed by Energy Transfer attorney Andrew Ray.27

A portion of the Energy Transfer Magellan filing was read into the record. As an industry

shipping practice, “[t]here are many legitimate business reasons why the shipper, whether

affiliated with the pipeline or unaffiliated, would move product between two points when

the price differential between the origin and destination points is less than the applicable

tariff rate.” (Tr. at 446, lines 17-23) Continuing, in its FERC filing, Energy Transfer added,

“Energy Transfer is aware of unaffiliated third-party shippers transporting product on

[Energy Transfer] pipelines at times when the price differential is lower than the applicable

filed tariff rate. It would be discriminatory for an affiliated shipper to be prohibited from

engaging in the same transactions in which an unaffiliated shipper engages.” (Tr. at 447,

lines 1-8)

Mr. Emery’s attempt to discredit Mr. Stuckey as having performed “a seriously

flawed analysis” and discredit his description of hypothetical shipping transactions is

belied by his own company’s filing at FERC.28 Energy Transfer contended in its FERC

Magellan filing that affiliated shippers should be allowed to ship at times when the price

differential is lower than the applicable transportation tariff rate. Energy Transfer’s

advocacy for the kind of transaction Mr. Stuckey described, but which Mr. Emery

27 Energy Transfer’s filing in Magellan was not a response to Magellan Midstream’s petition initiating the proceeding, but followed and was in response to Magellan Midstream’s request for rehearing or clarification of FERC’s Order. 28 The conflict between Mr. Emery’s testimony and Energy Transfer’s statements at FERC represent yet another example of why SOIL-SC-WK question Joint Petitioners’ testimony and representations in this docket.

126

dismissed as unrealistic, is contrary to Mr. Emery’s claims that such transactions are

antithetical to the way business is conducted. Mr. Emery thereafter actually buttressed

the legitimacy of Mr. Stuckey’s hypothetical shipping transaction, when he acknowledged

there are times where the shipper incurs a loss for legitimate business reasons, such as

establishing a shipping history on the pipeline. (Tr. at 458) Mr. Emery also was asked on

cross about Energy Transfer’s 10-K report to the Securities and Exchange Commission

for the year 2018. Appearing in the regulatory risks portion of the 10-K report, and relating

to the Magellan Order, Mr. Emery read the following sentence into the record: “Depending

on how FERC responds [to requests for rehearing], it could have an impact on the rates

we are permitted to charge.” (Tr. at 464) Such a statement strongly suggests that the

FERC Order in Magellan, if not reversed or overturned, would require Energy Transfer to

change the way its pipeline business is conducted. If Energy Transfer was in fact

compliant with the Magellan Order, such a disclosure in its 10-K report would seem to be

unnecessary.

In his next, and last, round of written testimony, Mr. Stuckey testified in response

to additional discovery information the Commission had compelled Joint Petitioners to

provide. (SOIL-SC Ex. 9.0) The additional discovery information pertained to certain

shipper identities and alleged demand for transportation service.

The newly-provided discovery responses and documents shed more light on the

business relationship between Marathon Petroleum Company L.P. (“MLP”) and its parent

Marathon Petroleum Corporation (“Marathon”) on the one hand, and Energy Transfer and

Joint Petitioners on the other. As Mr. Stuckey testified, additional information about that

business relationship was sought because of the apparent tie between Marathon’s

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purchase of an equity interest in the pipelines and MLP’s transportation volume

commitment on the pipelines as a shipper. (SOIL-SC Ex. 9.0, lines 37-42)

Mr. Stuckey testified further that a new discovery response from Joint Petitioners

disclosed that, in August 2016, MLP had entered into a ***CONFIDENTIAL xxxxxxxxx




xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx. CONFIDENTIAL *** (Id., at 3, lines 50-59)

Mr. Stuckey noted that a similar discovery request was made in relation to Phillips 66, but

as of the date of Mr. Stuckey’s testimony, SOIL-SC had not received such requested

information from Joint Petitioners. (Id. at 4, lines 73-79) As he further explained,

however, public information pointed to Phillips 66 having entered into a similar

arrangement as the one by MLP. (Id. at 4-5, lines 80-112). Mr. Stuckey’s testimony as to

Phillips 66 likely having entered into a similar arrangement was confirmed by the

subsequent supplemental rebuttal testimony of Mr. Emery. (Dakota Access-ETCO Ex.

1.10, lines 70-79)

The relationship of the equity investments in Joint Petitioners’ pipelines by MarEn

Bakken and Phillips 66 to the commitments for capacity on the pipelines by, respectively,

Marathon (or an affiliate) and by Phillips 66 (or an affiliate), constitute examples of

transactions by which an affiliate of a shipper makes an equity investment in a pipeline

company (or its owner) tied to, or conditioned upon, the shipper making a commitment to

contract for capacity on the pipeline.

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Joint Petitioners previously denied any tie existed between such equity

investments and shipping commitments. When confronted with such a possibility, they

argued that, “[t]here is nothing to see here” in the context of Marathon’s ownership interest

and the capacity commitment. (Joint Petitioner November 7, 2019, Response to October

24, 2019, Motion to Compel, at 16)

Prior to being compelled to respond SOIL-SC’s discovery requests, in response to

SOIL DR 1.057, Joint Petitioners stated, “…there have been no transactions where a

shipper has agreed to subscribe to capacity on Petitioners’ pipelines in an open season

in connection with an equity transaction. Petitioners further state that as common

carriers, they are prohibited from conditioning the award of pipeline capacity to a shipper

in an open season on the shipper committing to purchase an equity interest in Petitioners’

pipelines.” (emphasis added) But as the supplemental rebuttal testimony of Mr. Stuckey

and the precedent agreement demonstrate, such assertions by Joint Petitioners were

inaccurate or mistaken (and in either case misleading).

A logical way to reframe the capacity-for-equity arrangement is to focus on whether

it results in a more Magellan-like rebate. If Marathon, as the affiliated shipper, incurs a

loss on shipping at the August 2016 open season’s tariff rate, but the transaction is still

economically beneficial from Marathon’s perspective given its ownership stake in DA

(although it would not be beneficial for a non-affiliated shipper), it encompasses a rebate.

The overall transaction would be beneficial for Marathon, for example, if an open season

tariff price is less than the expected price differential for the delivered oil, but greater than

the variable cost of transportation, Marathon can still make a profit depending on how

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much of DA’s profits on Marathon’s tariff rate payments (i.e., above the variable cost)

Marathon receives back through the dividend it receives through its ownership share.

As SOIL-SC-WK have described hereinabove, Courts have historically interpreted

the ICA and Elkins Act as prohibiting any sort of benefit to a shipper – “as long as they

result in lowering directly or indirectly transportation costs to a shipper” – that are not

spelled out in the tariff and available to all shippers. These cases support an interpretation

of the ICA as prohibiting a common carrier from providing any benefit to a shipper that is

not included in the filed rate. The facts and holding in Union Pac. R.R. Co. v. United

States, discussed supra, are instructive and bear reiterating. In that case, the railroad

company’s activities in cooperation with the City of Kansas City, Kansas to lure merchants

from an established railroad terminal in Kansas City, Missouri to a new terminal that

Kansas City, Kansas would construct and own. (313 U.S. at 452) Kansas City, Kansas

persuaded – with the railroad’s urging and support – the merchants to move to the new

terminal by offering “free rents, reduced rents, free refrigeration, cash payments and

rental credits purporting to be for the purpose of paying such produce dealers’ cost of

removal from Kansas City, Missouri.” (Id. at 458) The railroad, in turn, advanced funds

and waived certain bond covenants to enable Kansas City, Kansas to offer below market

terms to the merchants. (Id. at 467-468) Although the railroad had not directly provided

a benefit to the merchants and the terms of the leases were not related to the railroad,

the U.S. Supreme Court found that there was a “plan for securing traffic, developed

cooperatively by a carrier and others, [and] the purpose makes clear that the concessions

offered are in respect to transportation” and therefore the railroad had violated the Elkins

Act. (313 U.S. at 467)

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FERC in Magellan reiterated that “[t]he fact that the filed tariff rate was paid by the

Marketing Affiliate to its pipeline is not relevant if the entire transaction includes either

direct or indirect payments back to the shipper because the ICA prohibits any and all

means or devices that result either directly or indirectly in a rebate from the filed tariff

rate.” (161 FERC ¶ 61, 219, at 14 (2017))

Joint Petitioners utilized a substantial portion of their last round of prepared written

testimony, which was termed “supplemental rebuttal,” in an attempt to rebut Mr. Stuckey’s

Supplemental Rebuttal and to defend against any possible claim that they or other Energy

Transfer affiliated entities have run afoul of the rebate, discrimination, and other

proscriptions of the ICA and the Elkins Act. Their evidence, however, falls short. Energy

Transfer (or at least its witnesses) concedes that the prohibition applies to a pipeline’s

relationship with its affiliate shipper.

Mr. Stuckey also described other new Joint Petitioner discovery responses

concerning credit ratings of and credit support for affiliated marketers shipping on Joint

Petitioners’ pipelines. (SOIL-SC Ex. 9.0, lines 115-118) To begin with, to assure

themselves of a shipper’s ability to pay, Joint Petitioners’ policy is to impose

creditworthiness requirements through their TSAs. (See Dakota Access-ETCO Ex. 1.10,

lines 208-216 (stating that Joint Petitioners’ TSAs have “have credit policies for shippers

that apply equally to all shippers, both affiliated shippers and unaffiliated shippers…”))

Specifically, Mr. Stuckey noted that Joint Petitioners’ TSAs require ***CONFIDENTIAL



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xxxxxxxxxxxxxxxxxx CONFIDENTIAL***

Energy Transfer has admitted that it has “received parent guarantees for credit

support on behalf of both affiliated and unaffiliated shippers.” (Id., lines 215-216) By

providing its wholly-owned, affiliate shippers with a parental guarantee, Energy Transfer

is providing a benefit (or rebate) – that is outside of DA’s filed rate – to affiliated shippers

that it is not providing unaffiliated shippers. Energy Transfer’s affiliates that are below

investment grade can ship on DA’s pipeline while avoiding letter of credit costs that may

be applicable to non-affiliated shippers. Such a guarantee may also be considered a

benefit outside of the filed rate prohibited by ICA Section 2.

Parental guarantees by pipelines (or pipeline owners) of affiliated shippers may be

commonplace in the oil pipeline industry, but, as FERC found in Magellan, that fact does

not make the practice legal. Energy Transfer (or at least its witnesses) has conceded that

the ICA – and by extension FERC – prohibits it from favoring its own shipping affiliates.

Joint Petitioners’ witness Jeff Makholm testifies:

Q. Does the federal regulation of interstate oil pipelines permit pipeline owners to favor affiliates, either in prices or terms of service? A. No. The bedrock principle of common carriage regulation, reflected in the Interstate Commerce Act is to prevent common carrier pipelines from engaging in unwarranted price discrimination or other operating practices that would abuse those affiliate relationships. [FERC] is highly attuned to relationships between crude oil pipelines and affiliated shippers and effectively prevents the use of those relationships to damage competition in oil markets. Such procedures reflect the longstanding way in which the FERC prevents undue favoritism or advantage in affiliated relationships that would run counter to the basic non-discrimination principles of common carriage as a form of regulation—as reflected in the Interstate Commerce Act. (Dakota Access-ETCO Ex. 6.5, lines 95-100, 109-112)

132

As an additional witness for their last round of prepared written testimony, Joint

Petitioners’ brought in a former FERC attorney, Derek Anderson, to address Joint

Petitioners’ compliance with the ICA. His role was limited to providing background legal

requirements under the ICA and, while stating he did not observe that Joint Petitioners

had violated the ICA, he acknowledged that he was not providing a legal opinion to that

effect, and his observations were based solely on a very few documents Joint Petitioners

had provided to him. Mr. Anderson also stated, “I believe Congress intended to protect

other shippers on the pipeline, who would be competitively and financially harmed if some

shippers (either affiliated or unaffiliated) were afforded more favorable treatment.”

(Dakota Access-ETCO Ex. 10.0, lines 86-88) On cross-examination, Mr. Anderson

acknowledged that similar prohibitions in the Elkins Act do not require a showing of

competitive harm to other, non-affiliated shippers. (March 9, 2020 Transcript at 492)

In the absence of an investment grade credit rating or similar arrangement, a

shipper—whether an affiliate or non-affiliate—must have some form of satisfactory

financial assurance to ship on Joint Petitioners’ pipelines. Financial assurances are

important for “oil pipelines like Dakota Access and ETCO . . . to obtain a reasonable

assurance that the pipelines will recover their costs.” (Dakota Access-ETCO Ex. 6.5,

lines 50-52) Mr. Emery explains further:

Q. Do Petitioners have credit policies for shippers that apply equally to all shippers, both affiliated shippers and unaffiliated shippers? A. Yes. Petitioners’ TSAs do not require credit support or enhancement for a shipper if the shipper has an investment grade credit rating. If the shipper does not have an investment grade credit rating, the shipper must provide credit enhancement, which may include a parent guaranty (if the parent providing the guaranty has an investment grade credit rating), letter of credit, or other satisfactory form of financial assurance. These

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requirements are applied equally to all shippers. Petitioners have received parent guaranties for credit support on behalf of both affiliated and unaffiliated shippers.

(Dakota Access-ETCO Ex. 1.10, lines 208-216)

Energy Transfer has publicly admitted that it has “received parent guarantees for credit

support on behalf of both affiliated and unaffiliated shippers.” (Id., lines 215-216)

Extending to sub-investment-grade affiliated shippers a parental guarantee from Energy

Transfer—a part owner of DA—is the functional equivalent of waiving the financial

assurances requirement for its affiliated shipper because Energy Transfer’s only

assurance that it will be paid by its affiliated shipper is that it will be able to pay itself. A

self-guarantee is no guarantee at all. Energy Transfer is therefore seemingly incentivized

to favor its affiliated shippers by providing a parental guarantee that effectively waives its

financial assurance requirements so they are eligible to ship on the Joint Petitioners’

pipelines and, in turn, to discriminate against unaffiliated shippers by applying those

financial assurance requirements to them.

B. Section 8-101 of the PUA

The agreements and practices of Joint Petitioners that violate the ICA’s anti-

discrimination provisions also are violative of PUA Section 8-101 (made applicable to

common carrier pipelines by Section 15-101). Section 8-101 provides in pertinent part:

“Duties of public utilities; nondiscrimination. … A public utility shall, upon reasonable

notice, furnish to all persons who may apply therefor and be reasonably entitled thereto,

suitable facilities and service, without discrimination and without delay.” Non-affiliated

potential shippers are included in “all persons who may … be reasonably entitled …[to]

suitable facilities and service, without discrimination….” The above discussion of Joint

Petitioners’ discriminatory practices, to the extent they violate federal statutory non-

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discrimination requirements in relation to non-affiliated shippers, would be equally

violative of Section 8-101.

C. Conclusion and Consequences

The United States Supreme Court held in New Haven that the contracts in violation

of the ICA are against public policy and void. A void contract is a “contract that is of no

legal effect, so that there is really no contract in existence at all.” (BLACK’S LAW

DICTIONARY 326 (7th ed. 1999)) The shipping contracts Joint Petitioners have entered

into with affiliated marketers that violate the federal statute therefore may not be

considered in determining the actual demand for capacity on the pipelines.

It is not just evidence of need for the additional capacity Joint Petitioners seek to

implement that is relevant. The additional capacity of 530,000 bpd builds on the initial

capacity of 570,000 bpd Joint Petitioners cite. If portions of the initial capacity are not

legitimate, the overall capacity Joint Petitioners seek to implement is not warranted and

the additional pumping capacity may not be necessary at all.

The Commission should not grant the Joint Petitioners’ requested relief if they,

together with their parent Energy Transfer, have violated other laws directly related to the

subject matter of their petition and, in addition, have violated the PUA’s own anti-

discrimination provisions applicable to common carrier pipelines. The Commission

regularly requires a public utility to satisfy other applicable laws and regulations (e.g.,

environmental, species, safety) as a condition of granting a certificate of public

convenience and necessity or other requested relief. SOIL-SC-WK acknowledge that it

is not customary for the Commission to require a common carrier oil pipeline company to

demonstrate compliance with the ICA as a condition of receiving approval for new pipeline

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facilities. SOIL-SC-WK also recognize that it is not the Commission’s responsibility to

enforce the ICA. SOIL-SC-WK also are not aware of a proceeding in which a pipeline’s

activities or facilities have been challenged as violative of PUA Section 8-101. In this case,

however, SOIL-SC-WK have demonstrated potential, if not probable, ICA violations. The

fact that Joint Petitioners initially refused to disclose requested information and

documents that exposed possible violations, together with misstating significant facts

directly relevant to ICA-compliance, should heighten the Commission’s suspicion and

concern.

That being the case, SOIL-SC-WK do not deem it necessarily appropriate for the

Commission itself to investigate and determine for itself the extent to which Joint

Petitioners’ activities, together with its parent company, have violated the ICA and the

Elkins Act. Nor do SOIL-SC-WK necessarily deem it appropriate for the Commission to

undertake such investigation under PUA Section 8-101. But those potentially non-

discriminatory activities should not be ignored. SOIL-SC-WK believe it is appropriate

under the circumstances for the Commission to seek FERC’s findings and conclusions

on this matter. The Commission could either directly seek such determination itself, or

require Joint Petitioners to apply for and obtain a declaratory order from FERC, similar to

the approach Magellan Midstream utilized. Having been made aware of these facts, the

Commission must decide if it wishes to sanction activity potentially violative of the ICA

and Elkins Act by granting the Joint Petition without further inquiry.

VII. CONCLUSION Joint Petitioners’ request for a Commission order approving their proposed project

under PUA Section 8-503 should be denied for a number of reasons. They have failed to

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seek applicable certificate authority under PUA Section 15-401; they have failed to show

a public need for the project; they have not adequately provided for a reasonably safe

pipeline with its nearly doubled throughput volumes; and they have likely violated federal

and state non-discrimination statutes.

Dated: April 23, 2020 Respectfully submitted,

Save Our Illinois Land, Sierra Club, and William Klingele

John D. Albers William M. Shay Shay Law, Ltd. 230 SW Adams Street, Suite 310 Peoria, Illinois 61602 (309) 494-6155 telephone (309) 494-6156 facsimile [email protected] [email protected] Save Our Illinois Land and Sierra Club Paul C. Blackburn Staff Attorney Honor the Earth 607 Main Avenue Callaway, MN 56521

mailto:[email protected]

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STATE OF ILLINOIS

ILLINOIS COMMERCE COMMISSION Dakota Access, LLC and Energy Transfer Crude Oil Company, LLC

: : :


: : : : :

19-0673

NOTICE OF FILING Please take notice that on April 23, 2020, the undersigned attorney caused the Initial Brief of Save Our Illinois Land, Sierra Club, and William Klingele in this matter to be filed via e-Docket with the Chief Clerk of the Illinois Commerce Commission in the above-captioned proceeding.

___________ John D. Albers Attorney for


CERTIFICATE OF SERVICE The undersigned attorney hereby certifies that he has caused the Initial Brief of Save Our Illinois Land, Sierra Club, and William Klingele in Docket No. 19-0673 to be served on each of the persons on the Service List by e-mail on April 23, 2020.

_ John D. Albers Attorney for


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ICC Docket 19-0673 Service List

John D. Albers, Atty. for SOIL, Sierra Club & Landowner Klingele Shay Law, Ltd. 230 SW Adams St., Ste. 310 Peoria, IL 61602 [email protected]

Amy C. Antoniolli, Atty. for Applicants Schiff Hardin LLP 233 S. Wacker Dr., Ste. 6600 Chicago, IL 60606 [email protected]

Glennon P. Dolan, Administrative Law Judge Illinois Commerce Commission 160 North LaSalle, Suite C-800 Chicago, IL 60601-3104 [email protected]

Bret A. Dublinske, Atty. for Applicants Fredrikson & Byron, P.A. 505 E. Grand Ave., Ste. 200 Des Moines, IA 50309 [email protected]

Ryan C. Granholm, Atty. for Applicants Schiff Hardin LLP 233 S. Wacker Dr., Ste. 7100 Chicago, IL 60606 [email protected]

Matthew L. Harvey Office of General Counsel Illinois Commerce Commission 160 N. LaSalle St., Ste. C-800 Chicago, IL 60601-3104 [email protected]

Steve Hughart, Business Manager/Financial Secretary IBEW Local 702 106 N. Monroe St. West Frankfort, IL 62896 [email protected]

Bina R. Joshi, Atty. for Applicants Schiff Hardin LLP 233 S. Wacker Dr., Ste. 7100 Chicago, IL 60605 [email protected]

Owen E. MacBride, Atty. for Applicants Schiff Hardin LLP 233 S. Wacker Dr., Ste. 7100 Chicago, IL 60606 [email protected]

Denise B. Mathews, President Save Our Illinois Land 218 N. Oak Ave. Barlett, IL 60103 [email protected]

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Jeff E. Naville Midwest Region Laborers' International Union of North America #1 N. Old State Capitol Plz., Ste. 525 Springfield, IL 62701 [email protected]

Elizabeth T. Pearlman Natural Resources Defense Council 20 N. Wacker Dr., Ste. 1600 Chicago, IL 60606 [email protected]

Keegan Pieper, Associate General Counsel Dakota Access, LLC Energy Transfer Crude Oil Company, LLC 1300 Main St. Houston, TX 77002 [email protected]

Brett Seagle, Case Manager Illinois Commerce Commission 527 E. Capitol Avenue Springfield, IL 62701 [email protected]

William M. Shay, Atty. for SOIL, Sierra Club & Landowner Klingele Shay Law, Ltd. 230 SW Adams St., Ste. 310 Peoria, IL 61602 [email protected]

Marcy A. Sherrill Office of General Counsel Illinois Commerce Commission 160 N. LaSalle St., Ste. C-800 Chicago, IL 60601 [email protected]

Patrick K. Shinners, Atty. for IBEW, Local 702 Schuchat Cook & Werner 1221 Locust St., 2nd Fl. St. Louis, MO 63103 [email protected]

Tanya L. Young, Paralegal Schuchat Cook & Werner 1221 Locust St., Ste. 250 St. Louis, MO 63103 [email protected]

Paul C. Blackburn Honor the Earth 4145 20th Avenue S Minneapolis, MN 55407 [email protected]

Documents

STATE OF ILLINOIS ILLINOIS COMMERCE COMMISSION Energy ... · SC-WK”) respectfully submit their Initial Brief in this matter. I. OVERVIEW The Illinois Commerce Commission (“Commission”)