Study: Agreements don't require Enbridge to cover full $1.8B in event of Line 5 spill

A recent financial analysis commissioned by the state found an agreement with Enbridge to pay up to $1.8 billion in costs stemming from an oil spill in the Straits of Mackinac was not sufficient to ensure Enbridge’s cooperation. 

The Canadian oil company’s global operation is not party to Line 5’s 1953 easement through the Straits and isn't part of two other recent agreements with the state, according the report from American Risk Management Resources Network, LLC. Instead, the agreements were made with subsidiaries of the company with insufficient funds to cover a potential $1.8 billion spill.

Enbridge Energy rejects the accuracy of the report, noting that a recent agreement with the state requiring the $1.8 billion in coverage was required of the Enbridge entities owning and operating Line 5, “or the parent companies of such Enbridge entity(ies).”

Enbridge cited the roughly $1.2 billion it paid toward restoration efforts after a 2010 pipeline rupture near Marshall as proof of its commitment. The company also noted that federal law would require the responsible party of a spill to pay all costs for cleanup and restoration. 

“The bottom line is Enbridge will take full responsibility and pay for all costs related to an incident,” said Enbridge spokesman Ryan Duffy. 

The analysis released last week and requested by Attorney General Dana Nessel found that parent company Enbridge Inc. could afford to pay for a spill requiring $1.8 billion in cleanup and remediation, a figure estimated by the Independent Risk Analysis for the Straits Pipeline. But the company’s subsidiaries were unable to cover the costs. 

“Enbridge Inc. is not contractually obligated to stand behind the indemnity agreements of a subsidiary,” the report said. “…the contribution of funds under an indemnity agreement made with a subsidiary would appear to be a purely voluntary endeavor for Enbridge, Inc.”

The $30,000 analysis was commissioned by Nessel and the state’s environmental and natural resources departments in August when the attorney general retained the company directly as a potential expert witness.

The report was released by the attorney general in a statement responding to the Michigan Court of Claims ruling that rejected Nessel's arguments and ruled the law allowing for a Line 5 tunnel authority was constitutional. 

Nessel has appealed the Court of Claims ruling and is involved in separate litigation in Ingham County Circuit Court seeking the shutdown of Line 5 on different grounds. 

The report, Nessel said, showed Enbridge “seriously misrepresented its financial holdings when it made its deal with the Snyder administration.” 

“In the event of a catastrophic oil spill, the people of the state of Michigan could be left holding the bag for more than a billion dollars in unfunded liability,” she said in a statement.

The report did not evaluate federal regulations regarding spill coverage, rules that Enbridge said would require the company “to pay all costs for cleanup, restoration, and remediation.”

Duffy countered Nessel’s claim that Enbridge had “misrepresented” its financial position, noting the company had supplied the state on Oct. 4 with its annual financial assurance verification. 

“If the state has any concerns or questions about our financial holdings, we are open to having discussions to work to resolve those concerns,” Duffy said. “To date, however, no state official has contacted Enbridge to discuss the analysis just released by the attorney general.”

The Michigan Chamber of Commerce defended Enbridge on social media where CEO Rich Studley called the study "an obvious attempt by the attorney general to shift attention away from her recent defeat at the Michigan Court of Claims."

Studley cited past studies American Risk Management Resources Network conducted that were critical of Enbridge's insurance coverage on its pipelines. Studley called the company "an 'expert witness'" for hire.

President David Dybdahl said American Risk Management Resources Network — an environmental risk management, expert witness and environment insurance company — has prepared two prior reports related to Enbridge.

One report urged Dane County, Wisconsin, to require Enbridge to get specific environmental insurance for a pump station, a recommendation that was not followed after the state legislature passed a law banning counties from making such a requirement.

A second report in Minnesota recommended Enbridge get environmental insurance, not just general liability, for a rerouting and replacement project on Line 3 — a pipeline that runs from Hardisty, Alberta in Canada through Minnesota to Superior, Wisconsin. 

It was during a later hearing before the Minnesota Public Utilities Commission that Enbridge Chief Financial Officer Chris Johnston gave testimony informing the American Risk Management Resources' Michigan report, Dybdahl said. 

Johnson testified that parent company Enbridge Inc. could not be obligated by a subsidiary, prompting concerns about the contradiction between that testimony and language in Michigan's second agreement with Enbridge subsidiaries that would obligate the parent company, Dybdahl said. The issue has a simple solution, he said. 

"All we’re recommending is have Enbridge Inc. sign (the agreement) and then you’re done," Dybdahl said.

Line 5 has been a source of concern to environmentalists and state officials since a separate Enrbidge line near the Kalamazoo River spilled oil in 2010. Enbridge ended up paying $1.2 billion for the cleanup and restoration of the area. 

Activists fear a similar spill from Line 5 in the Straits, where the 66-year-old dual span transports up to 540,000 barrels per day of light crude oil and natural gas liquids. Such a spill would have a catastrophic effect on the Great Lakes because of the pipelines' placement between Lakes Michigan and Huron. 

Enbridge last year agreed to pay $500 million to build a tunnel beneath the Straits of Mackinac as a safety precaution to house Line 5 and other utilities and has committed $40 million to the project this year. 

Nessel earlier this year said the company’s agreement with the state was unconstitutional and is suing to shut down the pipeline in Ingham County Circuit Court on the grounds that the aging pipeline constitutes a public nuisance and environmental risk. 

Pipeline supporters have raised concerns about what an shutdown would mean for the Upper Peninsula which relies on the natural gas liquids for propane. 

Gov. Gretchen Whitmer negotiated with the company earlier this year in an attempt to guarantee a shorter timeline for completion of the tunnel. But when the company was unable to meet a two-year timeline for completion and instead committed to a five-year construction period, negotiations fell apart. 

eleblanc@detroitnews.com