Keystone XL Pipeline Review Lacked 'Expertise And Experience,' State Department IG Finds

WASHINGTON -- The State Department did not improperly conduct its review of the Keystone XL pipeline, the Department's Office of the Inspector General concluded in a report delivered to Congress Thursday, and made available to The Huffington Post.

The report, which also addressed concerns raised by several members of Congress that the State Department had overlooked evidence of a conflict of interest between the pipeline owner, TransCanada, and the contractor assigned to help run the environmental studies, CardnoEntrix, exonerated the department of the more serious malfeasance and bias allegations.

"The department followed the Federal Energy Regulatory Commission's third party contracting process, from reviewing, editing and approving the draft request for proposal to independently reviewing proposals and selecting a contractor," the report stated. "OIG determined that the department did not violate its role as an unbiased oversight agency."

The 1,700-mile Keystone XL pipeline project, which would stretch from Western Canada to Texas, has found itself wrapped up in a high-stakes game of politics and environmental science. Last month, after years of deliberation and high-profile protests, the State Department finally killed the project, saying they could not approve it in the limited time frame allotted by the Republican supporters of the pipeline.

TransCanada and its Republican allies in Congress have pledged to continue fighting to see the project take shape.

Meanwhile, a close examination of the investigator general's report points to a number of problems in the environmental review process -- many of them previously reported by The Huffington Post -- that undermine the claim that the third-party contractor, CardnoEntrix, did not unduly influence the final determinations of the department.

One of the main matters of concern to congressional overseers was whether the State Department had sufficiently vetted the existing relationships between CardnoEntrix and TransCanada. CardnoEntrix had previously described the pipeline company as a "major client" in marketing materials.

The IG report found that although some relationships did exist -- including an ongoing contract to work on an earlier TransCanada project, Keystone I -- the financial entanglements between the two companies did not meet government definitions of a conflict of interest.

Here, and at other points in the report, the investigator general also relied on the fact that CardnoEntrix "takes direction from and reports solely to the Department," in concluding that any existing relationships between the contractor and TransCanada had appropriate oversight.

But for much of the period being investigated, as HuffPost reported, the State Department had almost no staff equipped with the expertise or experience to give such direction:

Where some have seen signs of complicity or conflicts of interest, others say the problem was simply that without comparable expertise, the State Department was ill-equipped to adjudicate technical disagreements between the contractor and other government agencies....

Indeed, for the first stages of Keystone XL -- as well as the entirety of Alberta Clipper and Keystone 1 -- the vast majority of responsibility for coordinating the environmental review fell to Elizabeth "Betsy" Orlando, a young member of the foreign service with no scientific background and little institutional support.

A lawyer by training, Orlando was technically a diplomatic courier, a job that normally entails shuttling classified materials around the globe, not delving into policy matters.

But according to several people familiar with the matter, Orlando -- whose name appears on just about every technical document associated with the Keystone 1, Alberta Clipper and Keystone XL projects -- was initially assigned to be the sole individual working full-time on the pipeline reviews at State. At a public hearing in Oklahoma during summer 2010, Kimberly Demuth, a vice president at CardnoEntrix, described the State Department's capacity as "a staff of one person, Betsy Orlando, who's in charge of this project."

The IG report confirmed this, concluding that the department's "limited technical resources, expertise, and experience impacted the implementation of the [review] process."

As a result, the IG found:

The Department relied heavily on outside parties, such as its third-party contractor and other Federal agencies with expertise, to address issues related to alternatives and mitigation, pipeline safety, and environmental risks throughout the EIS process.

The reliance on "other Federal agencies" might have been sufficient had the IG not also concluded, in the case of at least one of those agencies, the U.S. Fish and Wildlife Service, that officials there interacted "almost exclusively with Cardno Entrix."

Fish and Wildlife Service officials were particularly concerned that their warnings went unheeded, especially regarding the pipeline's possible effects on migratory birds and the habitats of a rare American beetle. For months after the draft EIS came out, emails obtained via a Freedom of Information Act request show officials from FWS and other agencies trying to make their case to officials with CardnoEntrix -- often even with the contractor's consultant, Trow Engineering. (The FOIA request, filed by the National Wildlife Federation, resulted in the emails being posted to a public portion of the FWS website.)

At one point this past January, a Nebraska field supervisor got fed up. "I have a real concern that the Department of State (DOS) is not engaged in the discussions and negotiation of the Keystone XL Pipeline Project," he wrote in an email that was made public on a government website in response to an earlier FOIA request. "I feel pretty strongly that meetings here on out need a DOS decision maker involved and engaged."

It's not clear what impact, if any, the IG report's conclusion will have on Keystone's eventual resolution, in part because Republican proponents seem determined to circumvent the normal channels to force the pipeline's approval.

Pipeline opponents have pledged to continue their fight to defeat the pipeline, especially while substantive holes in the environmental review process remain unresolved.

"I think that's the heart of the matter," said Anthony Swift, an energy analyst at the Natural Resources Defense Council, of the lack of scientific expertise at the department. "[The IG report] is kind of glossing over a very important dynamic that really did factor in to the environmental impact study process and the problems associated with it. While the narrative is that there was no conflict of interest, what's actually happening was the State Department and other federal agencies didn't have the capacity to supervise CardnoEntrix."