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Unequal risks, benefits along pipeline route

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Posted: Tuesday, January 17, 2012 9:49 am | Updated: 10:14 am, Tue Jan 17, 2012.

If the Keystone XL oil pipeline were approved today, residents in the six states along its route would not receive equal treatment from TransCanada, the company that wants to build the project.

The differences are particularly striking when it comes to tax revenue and environmental protection. States with stronger regulations have won protections for their citizens, while other states sometimes focused more on meeting TransCanada's needs.

In Kansas, for example, lawmakers gave TransCanada a 10-year tax exemption, which means the state won't receive any property tax revenue from the pipeline. Meanwhile, each of the other five states — Montana, South Dakota, Nebraska, Oklahoma and Texas — would earn between $14 million and $63 million a year, according to U.S. State Department estimates.

When it comes to route changes and protection for landowners, residents of Texas, Oklahoma and Kansas have fared the worst because their states haven't created any regulations to safeguard their interests.

That's what happened in Nebraska, where residents worked to persuade their lawmakers to reroute the Keystone XL out of the ecologically sensitive Sandhills. Farmers and ranchers picketed the governor's mansion, traveled to Washington, D.C., and repeatedly called for a special session to draft siting regulations for interstate pipelines.

As the momentum grew, TransCanada offered Nebraska a $100 million dollar spill bond for the Sandhills region — a protection it didn't offer any of the other states.

Nebraska Gov. Dave Heineman finally called a special session in November, where bills were passed to move the pipeline out of the Sandhills and to give the Public Service Commission authority to site future oil pipelines (excluding Keystone XL). TransCanada is now working with state environmental officials to establish a new route for its pipeline.

What Nebraskans have done is very significant, said Mary Boyle, a spokeswoman for the nonpartisan watchdog group Common Cause. Legislators won't act unless they feel outside pressure from constituents, she said, so getting those bills passed is "no small accomplishment . . . Nebraska citizens clearly proved this can be done."

Eminent domain

Despite the new regulations in Nebraska, some landowners there felt helpless when TransCanada raised the possibility of using eminent domain to acquire land.

All six states have given the company the power of eminent domain. While the eminent domain laws vary from state to state, they generally allow projects built for a "public" good — including railroads, transmission lines and highways — to use private land after paying landowners a fair price that's determined by the courts.

But pipeline opponents say Keystone XL shouldn't be allowed to use eminent domain because it's not serving the United States public.

Harlan Hentges, an attorney who represented an Oklahoma family that challenged the taking of their land, said TransCanada is a foreign company (its headquarters are in Canada) transporting foreign goods in the form of crude oil across the U.S. for export.

Montana is the only state that offers its residents some protection from eminent domain.

Its siting act requires that pipelines be built on public land whenever it's economically feasible. As a result, 77 percent of the pipeline's route through Montana falls on private land, while that number rises to more than 92 percent in the other five states. In Texas, all of the Keystone is routed through private land.

Montana also doesn't allow companies to take landowners to court until that state’s Department of Environmental Quality gives a project a final stamp of approval, known as a Certificate of Compliance.

Sue Kelso, the Oklahoma landowner who hired Hentges to challenge TransCanada's use of eminent domain on her family farm, said she feels abandoned by her state officials.

The Oklahoma Corporation Commission — the agency in charge of pipeline regulation — has little control over interstate pipelines. Commission spokesman Matt Skinner said the agency's role is limited to remediation after oil spills.

"I live in fear that this pipeline will go through and ruin all the water," Kelso said.

When Kelso refused to sign TransCanada's contract, she said the land agent threatened to use eminent domain. "She told me to either take what they offered or they'd condemn our property and take it anyway." That's when Kelso hired Hentges.

In August, TransCanada voluntarily rerouted the pipeline around Kelso's property. Hentges said she believes the company wanted to avoid going to court.

In Texas, property rights activist Debra Medina is lobbying legislators to clarify the state's eminent domain law. State law grants the operators of common carrier pipelines — defined as "to or for the public for hire" — the power of eminent domain, but it's unclear if the word "public" refers to Texans or the public at large, Medina said.

What about spills?

Federal regulations require pipeline companies to file oil spill response plans, but TransCanada hasn't completed its plan for the Keystone XL.

TransCanada spokesman Terry Cunha said the plan will be finalized once the entire project, including the new route through Nebraska, is confirmed.

Even after the plan is released, it will be difficult for landowners along the route to examine the document, said Carl Weimer, executive director of the Pipeline Safety Trust, a nonprofit that promotes fuel transportation safety. The spill plans are created by pipeline companies and given directly to U.S. Pipeline and Hazardous Materials Safety Administration for review. An administration spokesman said the secrecy is necessary because the plans contain potentially sensitive information about public safety and homeland security.

Weimer said some states, including Washington and Alaska, have taken steps to make emergency response information more transparent. But none of the Keystone XL states are included in that group, he said.

TransCanada told InsideClimate News that the company is ready to respond to emergencies. "We've procured and stored equipment, hired personnel and contractors along the length of the pipeline specifically to ensure we are capable of responding quickly," said spokesman Shawn Howard.

Political landscape

TransCanada’s Terry Cunha said the vast differences in pipeline regulation reflect the political landscape of each state.

"We appreciate that each state has their own guidelines," he said. "It's not up to us to modify or create legislation. We're working with the state governments to meet guidelines and get this project approved."

Other states could follow Nebraska by pressuring their legislators to create pipeline regulation, said Pat Parenteau, a Vermont Law School professor who studies land use and environmental policy.

"If there's a popular enough demand," it can be done, he said.

But Zona Vig worries that the company will have trouble responding to an emergency on her South Dakota family ranch, which is 100 miles from the nearest hospital. The region is criss-crossed by dirt roads that become impassable during rains, Vig said. "What happens if you have a leak? How are you going to get people out here, especially in a blizzard when the wind is blowing and the snow's coming down?"

Vig and her neighbors are accustomed to taking care of themselves. Her husband pilots a small plane that's sometimes used for medical emergencies, and her son is part of the county's volunteer fire department. But there are no other oil pipelines in Meade County, and Vig said they're not prepared to deal with a spill.

Tax revenue

According to the U.S. State Department's Final Environmental Impact Statement, the pipeline would generate property taxes ranging from $14 million per year for Oklahoma to $63 million per year for Montana. But experts say actual tax revenues may vary significantly from those estimates.

South Dakota taxes pipelines based on the income they generate, so "it's rather difficult assessing a future project," said Mike Houdyshell, director of the Property and Special Tax Division at the South Dakota Department of Revenue. Pipelines don't make any income until they're operational, and that income is dependent on market forces during the time of operation.

The state of Kansas stands to gain the least financially from the Keystone XL. Its situation is unique because the first Keystone pipeline already runs through Kansas, and part of that pipeline would act as a bridge between two sections of the new pipeline. However, the Keystone XL would increase the amount of material flowing through Kansas, so TransCanada would need to build additional pump stations in the state to handle the new capacity (up to 830,000 barrels of oil per day).

When TransCanada began planning the Keystone pipeline in 2005, Marion County commissioner Dan Holub was one of the few Kansas officials who opposed it.

Holub tried to persuade state officials to help address landowners concerns. But instead, the Kansas legislature passed a series of bills to incentivize energy processing, including one that granted large pipelines a property tax exemption for up to 10 years. The new pump stations for Keystone XL would likely receive the same tax exemption.

State Sen. Jay Emler, who voted for the tax cut, said the bill guaranteed a steady source of crude oil for the state's refineries and was meant to encourage TransCanada to build the pipeline through Kansas.

TransCanada also got a tax break in South Dakota when the first Keystone pipeline was routed through the state. South Dakota legislators passed a bill in the 1990s to grant large energy projects (including ethanol plants and wind turbine factories) a refund on a 4 percent contractor excise tax. The law wasn't intended for oil pipelines, said Scott Heidepriem, a former state senator who now runs a law firm in Sioux Falls, but it was so loosely worded that TransCanada qualified.

Heidepriem said the first Keystone pipeline is eligible for more than $30 million from the tax refund, though records from the South Dakota Department of Revenue show that the company had claimed just $2.7 million as of September 2011.

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