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According to new documents reviewed in The Daily Poster, even though Republican state officials insist on the necessity of Canadian oil pipelines to lower energy costs for American consumers’, the fossil fuel giant that operates those pipelines is now citing the climate crisis it is creating as a reason to raise those prices higher.
Last month, Ohio Republican Governor. Mike DeWine—who has raked in nearly $400,000 from fossil fuel industry donors—demanded the Biden administration keep open Enbridge’s controversial Line 5 pipeline, which runs under the Great Lakes, as a way to reduce energy prices.
Enbridge just dropped a bombshell that undercuts that argument. The company told regulators that climate change has reduced the economic life span of its tar sands pipeline network by 19 years. That assertion could allow the company to jack up the tolls that its customers pay to transport oil through its pipelines, because pipeline operators are authorized to recoup their operational costs through rate increases—and a shorter timetable means higher levies.
The episode is a spectacle that is known as disaster capitalism. In this instance, a fossil fuel company is citing the environmental crisis it is intensifying to justify its ability to extract more profits form consumers already being squeezed by higher prices.
“It is ironic that pipeline companies such as Enbridge admit they can see that the writing is on the wall, that they are not going to compete or be needed less than twenty years from today, and that’s why they have to increase prices today to cover that,” Ari Peskoe (director of the Harvard Law School Electricity Law Initiative) said. “There is something incongruous.”
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Enbridge has done everything possible to protect and expand its vast pipeline network, which is the largest in North America. Despite years of resistance from Indigenous peoples, climate activists and lawmakers, Enbridge completed construction on the Line 3 pipeline in Minnesota this year. Now, the company is trying to derail Michigan’s governor. Gretchen Whitmer is running for reelection in Michigan. Whitmer issued an order to shut down Line 5, the company’s aging pipeline. Whitmer stated that a spillage could be imminent, and the pipeline runs through Great Lakes.
Enbridge was a participant in that battle. He has insisted ThatLine 5’s shutdown would cause fuel prices to spike as it supplies 10 refineries in the area. However, the company stated to federal energy regulators this May that its pipelines would likely be worth much less as governments are preparing to reduce carbon emissions from their products.
This admission was made in filings to the Federal Energy Regulatory Commission, the U.S. regulatory agency that regulates electricity, oil and natural gas as part of ongoing tariff negotiations between oil companies using its pipeline network. Enbridge submitted a May 2021 depreciation study to the Federal Energy Regulatory Commission (FERC) in which it proposed an accelerated schedule for its Lakehead Pipeline System. The pipeline transports crude oil through the Upper Midwest from the Alberta Tar Sands.
That is what I mean. study,Enbridge estimates that the Lakehead network will have an economic lifespan of 19 more years. This is a decline from its 2016 estimate, which projected a life span of at least 30. Enbridge was not required by law to update the estimates until 2026. Instead, Enbridge filed the most recent depreciation filing five-years early as part the negotiations.
Enbridge cited several factors to justify the shorter expected lifespan of its pipelines. These include: “current and anticipated competitors to the Enbridge Mainline”, actions by state governments and the uncertainty arising out of the recent acceleration of Federal (United States) and Canadian decarbonization legislation, or policies that could influence the market demand.
Enbridge brought up these matters in its tariff negotiations because the rates for using pipelines are set by FERC to account for pipeline companies’ operational costs—infrastructure investments, salaries, maintenance, and other expenses—as well as reasonable profit. If a pipeline’s economic life is shorter, it won’t be in a position to collect payments from customers for the same number of years. The company can raise rates to recover construction costs.
Juli Kellner, Enbridge spokesperson, stated that these filings “take into account the changing environment and political landscape in which our operation this critical piece of infrastructure.” The Daily Poster.
Enbridge’s pipelines carry oil from tar sands producers. Enbridge filed a protest with FERC to contest the 2040 truncation. They don’t want a higher rate and protested. CAPP, the Canadian Association of Petroleum Producers, filed the protest asking FERC to investigate the facts behind Enbridge’s claims regarding its remaining economic life. Protesters claim that the Lakehead System may be, and indeed will be, out business. [2040]It is amazing considering all the facts.”
Kellner stated that depreciation studies are used to determine cost-of-service, but cautioned that they may not reflect actual asset life.
Enbridge and its customers may reach a settlement through ongoing negotiations, before FERC has the opportunity to intervene.
The negotiations, regardless of whether the pipeline company or the oil companies come to an agreement with each other, point to a problem experts believe will become more common in the coming years: As the big business that extracts and moves crude oil ends, who should shoulder the risk and cost of that transition?
The Minnesota Public Utility Commission’s multiyear permitting process for Line 3 through Minnesota was centered around the question of whether there was enough demand for oil to justify building the pipeline. Enbridge stated in its April 2015 application to a “certificate de need” for the pipeline that the Project’s expected economic life will not be less than 30 years.
Enbridge repeated this estimate throughout the permitting process, stated Paul Blackburn, an attorney representing Honor the Earth, an environmental justice organisation that has opposed Line 3. “Thus, the…” [new depreciation study]”Represented a fundamental shift for Enbridge’s understanding about its future,” Blackburn stated.
Enbridge claimed that the Line 3 pipeline is not covered by the most recent study because it was still under construction when the study was done. Blackburn, however, disputed the claim that one pipeline passage could outlast the rest.
“Enbridge implies that the new Line 3 can still operate even if the rest is not. And of course, this is a blatantly false statement because new Line 3 receives crude oil from other Upstream Pipelines and Tanks owned by Enbridge and then delivers oil to other downstream Pipelines and Tanks,” he said. “If the operation of these other Mainline System pipes and tanks ceases, it would make it impossible for new Line 3’s continued operation.”
Experts disagree, however, that Enbridge’s new statement raises questions about who should pay for the accelerated depreciation.
“The oil and natural gas companies and the environmental groups have agreed to accelerate depreciation. James Coleman, Southern Methodist University professor of energy law, stated that the fossil fuel companies get the money for their infrastructure while the environmental groups get an earlier shut down. “The consumer groups are the real problem, and have always been, for this to work,” Coleman said. And if you start charging more, and that shows up in oil and gas prices—we’ve seen that might be politically sensitive.”
Some of those costs will be assumed by energy customers in Minnesota, where Enbridge—with the support of local officials and police—forced through completion of its Line 3 pipeline this summer despite herculean efforts by Indigenous-led groupsTo stop it.
Blackburn, Honor the Earth, stated that the oil industry tries to pass all its costs onto consumers. Therefore, it is likely Enbridge’s tariff rate hikes will be passed onto consumers. “The new Line 3 supporters who claimed it would lower fuel costs in Minnesota by increasing supply completely ignored the complexity of this market.”
It doesn’t help that no one is sure how much oil will be needed several decades from now—and that’s not just because Enbridge and oil companies are currently arguing over the matter in tariff negotiations. Enbridge’s proposal for an oil pipeline truncation, which tar-sands companies are blaming as being too early is still much later than what scientists consider necessary to stop catastrophic global warming.
Coleman stated that “we live with a certain degree of cognitive dissonance regarding these inconsistent commitments” and that companies and regulators like FERC have to make a prediction about what will happen. “The rates they are recovering today are dependent on how much oil is used in 2040 and 2050.” This is why there is a wild asymmetry in our predictions about the oil consumption in 2022. How can we make accurate predictions about 2040 and 2050?
Regulators as well as lawmakers will have to tackle a bigger question: Who will bear the costs for soon-to-be stranded assets such natural gas and pipelines?
According to a 2019 study, if a plan is not in place to account the costs of obsolete pipelines, it will likely fall on the shoulders of those least equipped to handle it. ReportCalifornia’s Environmental Defense Fund has published information about the state’s natural gasoline infrastructure.
Kerem Yucel/AFP/Getty Images
“What [would end]You make it happen. [electricity bills]Customers who can afford to leave the gas network early will be more likely to pay more for it through accelerated depreciation. “This will leave behind customers that aren’t capable of electrifying, so you end with a tradeoff where wealthyer and whiter customers, who own their homes and have more control over the site, electrify while the rest of customers, which tend to be lower and middle-income and more renters, are left behind.”
California’s newly passed climate legislation is likely will cause utilities to reduce the life span of their natural gas pipelines. Advocates and regulators are trying a forward-looking strategy to address the situation, including phasing out gas in a planned timeline.
Colvin explained that if governments set targets and require utilities submit plans to recover their costs then the eventual abandonment can be managed with an eye on equity. Policymakers have a number of tools at their disposal to protect low-income customers from the brunt of the risk. These include tax dollars covering some of decommissioning costs or forcing utilities to share some of the cost through lower profits. Companies like Enbridge have the power to reduce their profits from rate collection.
The pipelines’ shorter life spans will not only impact energy bills, but also the lives of the people who live in the affected areas. Line 3 was responsible for droughts and the leaching of drilling fluids into waterways during construction last year.
Honor the Earth in Minnesota has petitioned state regulators to ensure Enbridge keeps its promise to decommission the pipeline as part of the permitting process. This is expected to cost $1.5 billion.
Honor the Earth stated in the petition that the Commission should act immediately on the matter. It should immediately establish a secure and robust funding mechanism to ensure that new Line 3, once it is abandoned, doesn’t become a financial burden on private landowners and those of the state and local governments.
