Enbridge vows to cover costs in ‘unlikely’ case of Michigan Line 5 rupture

• Dec. 10, 2019: Enbridge lost rods in the Straits. It didn’t tell Michigan for two months.

Enbridge is disputing Michigan Attorney General Dana Nessel’s suggestion that state taxpayers “could be left holding the bag” for cleanup costs if the Candadian-based company’s twin Line 5 oil and gas pipelines were to rupture in the Straits of Mackinac. 

“The bottom line is Enbridge will take full responsibility and pay for all costs related to an incident,” Enbridge spokesman Ryan Duffy told Bridge Magazine in an email late Monday, calling the prospects of a rupture on the controversial pipeline “unlikely.” 

The vow came days after Nessel released a 120-page report raising questions about Enbridge’s financial obligations under a series of agreements its U.S.-based companies signed with then-Gov. Rick Snyder’s administration in 2018. 

The agreements aimed to pave the way for Enbridge to build a $500-million bedrock tunnel around a new section of Line 5 in the Straits — a project that Nessel and fellow Democrat Gov. Gretchen Whitmer have tried to halt. 

In one such agreement, certain U.S.-based Enbridge companies agreed to fund nearly $1.9 billion in potential damages if Line 5 ruptured.

The state commissioned Wisconsin-based American Risk Management Resources to probe that financial assurance. (The state paid $30,000 for that work, Nessel’s office told Bridge.)

The report concluded that Canadian conglomerate Enbridge Inc. had enough money to pay for such a pricey cleanup and restoration. But the report pointed out that Enbridge Inc. didn’t technically sign the agreement with the state — only its U.S. subsidiaries did. And those U.S. companies “would not have enough resources to fund a loss event of this magnitude” — unless their Canadian parent company voluntarily bailed out the companies, the report said. 

According to the report, Chris Johnston, Chief Financial Officer of Enbridge Energy Partners, L.P,  told the Minnesota Public Utilities Commission in 2017 that the Enbridge parent company isn’t obligated to honor assurances from its U.S. subsidiaries. The testimony came in a case concerning a different Enbridge pipeline.

Those findings prompted Nessel to conclude last week that: “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.”

On Monday evening, Duffy initially told Bridge that “the analysis recently released by the Attorney General leaves no doubt that Enbridge has the resources to meet this legal obligation,” pointing to the finding that the Canadian parent company could cover spill costs.

Duffy later disputed some of the report’s conclusions after Bridge asked more detailed questions. On Tuesday, Duffy sent Bridge a statement saying Enbridge’s U.S. subsidiaries could cover the cost of a spill by themselves.

“The subsidiaries that signed the 2018 agreements with the State of Michigan, including Enbridge Energy Partners L.P. , all do business in the U.S. and own billions of dollars of assets in the U.S., more than enough to cover any risk and the assurances made to the State,” Duffy’s statement said. 

“In the unlikely event of an incident on Line 5 these subsidiaries have access to all of the financial assurances described in Enbridge’s financial assurance verification report given to the State on October 4.”

Additionally, Duffy said Enbridge’s Canadian parent company would cover its subsidiaries’ cleanup liabilities if need be. He said U.S. law would require Enbridge to fund cleanups and restoration (under the Oil Pollution Act of 1990), and he pointed to a section of Enbridge’s 2018 agreement with the state that mentions potential liability for the Enbridge parent. 

That provision says: 

“Enbridge nonetheless agrees that, so long as it continues to operate the Dual Pipelines, the Enbridge entity or entities that own and operate Line 5, or the parent companies of such Enbridge entity(ies), will maintain in force financial assurance mechanisms that meet or exceed the $1,878,000,000 estimate of Enbridge’s potential total quantifiable response liability for a worst-case discharge from the Dual Pipelines that is identified in the Independent Risk Analysis.”

“If the state has concerns about the way this is set up, or questions, we'd be happy to talk and and address those concerns,” Duffy told Bridge in an interview.  “Nobody has reached out to us at this point.”

Enbridge also owned Line 6B, which broke in the Kalamazoo River in 2010, triggering one of the worst inland oil spills in U.S. history. More than 1.2 million gallons of crude oil was recovered during a four-year cleanup and Enbridge has paid $1.2 billion for cleanup and restoration.

Duffy said Enbridge’s subsidiaries and parent company combined to defray that cost. 

David Dybdahl, the expert in environmental management and insurance who authored the report Nessel released, did not respond to a message from Bridge on Tuesday. 

Kelly Rossman-McKinney, Nessel's spokeswoman, told Bridge Tuesday that "the Enbridge subsidiaries that signed the 2018 Agreements and are legally bound by it have not documented their own financial capability to cover an estimated liability of $1.878 billion." 

Rossman-McKinney shared the two-page financial assurance statement Enbridge submitted to the state last month. It discusses only the parent company's finances — in Canadian dollars. The statement says Enbridge Inc. has immediate access to $700 million in cash and $5.6 billion in "credit facility," along with $6.3 billion in "other resources." That's a total of $12.6 billion in short-term resources.

Line 5 transports up to 540,000 barrels of light crude oil and natural gas liquids per day from Superior, Wisconsin, to Sarnia, Ontario. That includes 547 miles across Michigan and 4.5 miles beneath the Straits, where it branches into two lines.  

Enbridge calls the pipeline crucial to delivering fuel across the region and argues a shutdown would particularly harm Michigan’s Upper Peninsula, which draws much of its propane from the line. 

Environmentalists and Michigan residents active in environmental issues, fear that a rupture, however slight the possibility, would create a catastrophe in the Great Lakes. They argue tunnel construction would take too long and would keep oil flowing through the Straits in the meantime.

On Oct. 31, a Michigan Court of Claims judge sided with Enbridge in its lawsuit against the state to restart plans on its tunnel. Nessel vowed to appeal.