Keystone contractor did not pose conflict of interest, IG says

February 10, 2012

The firm the State Department hired to conduct an environmental assessment of a controversial oil pipeline project did not pose a conflict of interest, the agency’s inspector general concluded in a report released Thursday.

Opponents of the Keystone XL pipeline extension — which would transport crude oil from Canada’s oil sands to Gulf Coast refineries — had suggested that Cardno Entrix had inappropriate ties to TransCanada, the firm seeking a federal permit from the State Department. TransCanada, which has hired Cardno Entrix multiple times in the past decade, listed it along with two other environmental consulting firms as possibilities to conduct the project’s environmental impact statement.

The State Department chose Cardno Entrix, which helped prepare an analysis of whether the project would harm the nation’s environment and helped run a series of hearings around the country for members of the public to comment on the permitting decision.

The State Department concluded in late August that the pipeline would not cause significant harm, although the agency later announced it would conduct a supplemental environmental review to determine how to reroute the pipeline around Nebraska’s Ogallala Aquifer.

In a 58-page report, Howard W. Geisel , the agency’s deputy inspector general, found “TransCanada did not improperly influence the Department’s selection of Cardno Entrix” and the financial and contractual relationships between the two firms “did not present a conflict of interest” in evaluating the pipeline’s environmental impact.

The IG report did suggest that the State Department “redesign” the way it selects third-party contractors when evaluating a project, noting that currently “the applicant decides which contractors receive the requests for proposal, is allowed to review the proposals, and then identifies its preferred contractor.”

The report added that the State Department’s “limited technical resources, expertise, and experience impacted the implementation” of its environmental review of the pipeline.

President Obama, facing a congressionally imposed deadline of Feb. 21 to either approve or reject the permit, rejected the pipeline last month. The supplemental environmental review in Nebraska, as well as the pipeline, is on hold as federal officials wait to see if TransCanada will reapply for a permit. Its backers say it will generate jobs and provide a secure supply of oil to the United States; opponents say extracting heavy crude in Canada will accelerate climate change and transporting the oil could imperil habitat along the pipeline’s route.

Rep. Peter Welch (D-Vt.), who had pressed for the probe, said the report was essential for providing “public confidence” that the agency’s review process was fair.

“I accept the conclusions,” Welch said in an interview, adding that federal authorities would still have to scrutinize the project’s environmental impacts further and look at its overall impacts if they were to approve it. “There’s a lot more in terms of substantive issues that need to be addressed.”

But Damon Moglen, climate and energy director at Friends of the Earth, said the report raised new concerns because it detailed the two firms’ financial ties and showed the State Department did not independently certify Cardno Entrix’s conflict-of-interest statement.

Juliet Eilperin is a White House correspondent for The Washington Post, covering domestic and foreign policy as well as the culture of 1600 Pennsylvania Avenue. She is the author of two books—one on sharks, and another on Congress, not to be confused with each other—and has worked for the Post since 1998.
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