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State Department Inspector General weighs in: Says make pipeline permit review more rigorous and free of appearance of conflict of interest

Liz Barratt-Brown

Posted February 9, 2012

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       “The appearance of this . . . needs to be cleaner”

          (unnamed State Department official in IG report)

In a report sent to Congressional offices today, the State Department Inspector General found that the environmental review of the Keystone XL tar sands pipeline had fallen short of providing an independent and objective review that Americans deserve. 

The IG investigation was initiated before the President and State Department announced they would take more time to review the impacts of the pipeline, and, in particular, look at alternative routes to cutting through the Ogallala aquifer, one of our nation’s most important water sources.  But in January, the permit was denied after Republicans in Congress insisted on attaching a rider to the payroll tax extension that forced the President to make a decision in sixty days.  The President made it clear that if the forcing language was included in the bill, he would have no choice but to deny the permit since there was inadequate time to complete the review and to find and evaluate an alternative route. 

At the heart of the controversy that initially sparked the IG investigation was the use of a “third party” contractor, Cardno Entrix, to conduct the environmental review.  In a procedure that many would liken to the fox guarding the chicken coop, the applicant for a project, in this case, TransCanada, presented the reviewing agency with its choices for contracting out the review.  The IG report explained that that practice has evolved because the applicant pays for the contractor and because this allows reviews to be processed more quickly. 

But there is obviously a downside to such active engagement of the applicant in the review.  At a minimum, it muddies the water regarding who is in charge of the contractor, the applicant or the State Department (it is still not clear who the contractor was contracted with – more on this later).  And the water is further muddied when you have a reviewing agency, like the State Department, which has little experience in implementing environmental reviews under the National Environmental Protection Act, conducting the review. It makes it more likely that the review will be untowardly influenced by the contractor, which is in effect working for the applicant. 

These were the very problems identified by the IG.  First, they found that while the selection of the contractor followed legal guidelines, it led to an appearance of conflict of interest.  The IG report quotes a State Department official who said that they had no control over who the applicant sent a proposal to and said further that because the applicant is “paying the bill”, the applicant was allowed to review the responses to proposals and to forward their top three choices to the Department.  The report goes on to find that two of the three proposals failed to meet minimum requirements, making Entrix the sole remaining choice (why the applicant wasn’t required to have those proposals fixed or put forward new ones is a mystery to me).  The IG report concluded:  “Any potential appearance of improper influence can lead the American public to question the Department's independence and objectivity.  Therefore, the Department should modify its third-party contracting process to reduce the appearance of improper influence." (p. 13)

Second, the IG found that there was a lack of technical depth on the part of the State Department.  They found that the Department had to rely heavily on Entrix to address both substantive and procedural issues, thereby further compromising the process.  The IG report stated:  "The Department’s limited technical resources, expertise, and experience impacted the implementation of the NEPA process. The Department had to rely more 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.  As a result, OIG believes the EIS and related processes were less effective, thereby delaying the decision for approval or denial of the Keystone application.” (p. 21)

Thirdly, the IG found that the State Department had failed to certify that there were no conflicts of interest between the contactor, Entrix, and TransCanada and had failed to look beyond statements made by Entrix to validate whether they were true.  The regulations the State Department follows require that conflicts of interest be identified and investigated.  The IG report stated:  “It is the applicant’s responsibility to review carefully all organizational conflict of interest materials to determine whether a bidder, including any subcontractors, is capable of impartially performing the environmental services required under the third-party contract…. However, the Department did not request, and TransCanada did not provide, the organizational conflict of interest certification required by the Federal Energy Regulatory Commission Handbook, nor did the Department conduct any independent inquiry into the information contained in the organizational conflict of interest statement.” (p. 24)

Finally, the IG report found that the State Department had failed to respond to two issues, stating that this was again likely due to lack of technical expertise.  First, they failed to respond to what I suspect were some rather sharp questions put forward by DOE about whether the pipeline would supply could be exported out of the U.S. and would reduce U.S. exposure to oil price and political volatility. Second, they failed to review alternatives to the pipeline route put forward by TransCanada.  This lack of consideration of alternatives became a major reason that the pipeline permit was ultimately denied.  The IG report stated:  “Although the Department took actions that generally addressed and incorporated the views and concerns raised by other Federal agencies in the final EIS, some comments from the Department of Energy’s July 2010 letter on the draft EIS were omitted from the appendix in the final EIS. Therefore, the Department did not provide a written response to all of the comments contained in the July 2010 letter. In addition, some concerns provided by the Department of Energy and the Environmental Protection Agency were not completely incorporated. In particular, these agencies commented on the lack of alternative routes and the rationale the Department had used to exclude those routes from further evaluation in the EIS.”  (p. 19)

One aspect of the IG report baffles me and that is its treatment of the FOIA process.  As an organization that has three major FOIA requests pending  (some pending since March of last year), I found it disturbing that the response rates of the Department were found to be within a reasonable range.  This is likely because they used one case as the outside marker that had gone on for longer than 2,000 days, or in other words, over five years.  This lack of responsiveness to FOIA requests deprives the public access to an open and transparent government generally. In this case, it has compounded the appearance of conflict of interest and unduly cozy relationships with the pipeline company and with its contractor, Entrix.  Here is what the IG report said:  “These cases are within the Department’s average complex case processing time for 2010, which is 284 days. In 2010, the fastest processed complex case was 21 days, and the longest case had been pending 2,162 days. These 18 cases are in various stages of processing, including releasing the first segment to the requestor, awaiting release to the requestor pending review, and tasking the request to various bureaus and offices for records.” (p. 38)  We hope that the State Department will hurry up and respond to our and others’ requests.

In summary and not surprisingly, The IG report made three major recommendations. 

1-      The Bureau of Oceans and International Environmental and Scientific Affairs at the State Department (OES), working with Legal Advisors office, should redesign the process for selecting third- party contractors, such as Entrix, by maximizing the Department’s control over each step of the process and minimizing the control of the applicant;

2-      OES should have a full time NEPA expert on staff.

3-      OES, working with the Legal Advisors office, should redesign process for selecting and using third-party contractors to improve Department’s organizational conflicts of interest screening process.

What is clear from all this is that, while the State Department has been cleared of legal wrongdoing, there are serious questions that remain about the  “independence and objectivity” (as stated by the IG) of the environmental review. Just today, Friends of the Earth, the organization that has led the call for an investigation into the State Department review, reported that the Department had denied their request for a copy of the contract between Entrix and either TransCanada or the State Department. Given that the Congressional offices requesting the review also asked for the contract, it is amazing to me that they are refusing to release it.  It only makes you wonder, what are they hiding? 

The larger point is that there were unseemly practices, that, while legal, undermined the review process.  If TransCanada were to re-apply, the State Department has made it clear they would have to go through the review process again.  And that is a good thing, in light of this report and the concerns we expressed in our letter to the IG office

But right now, Republicans on Capitol Hill are busy trying to attach riders to any bill that moves that would force approval of the Keystone XL tar sands pipeline.  Attaching a rider forcing approval of the pipeline would make a mockery of a fair and “cleaner” review process for any pipeline, and certainly for one as massive as the Keystone XL tar sands pipeline. 

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BSFeb 9 2012 09:31 PM

So NRDC articles are going from "Keystone XL is evil" to topics more along the lines of "if we're going to build it, let's build it right". Glad to see you've had such a change of heart!

BSFeb 10 2012 09:51 AM

OK, I'm a bit confused with the first part of your article. Your article claims that, "State Department Inspector General found that the environmental review of the Keystone XL tar sands pipeline had fallen short of providing an independent and objective review...."

However, the report that you link to actually states that, "OIG found no evidence that TransCanada (the applicant) had improperly influenced the
Department’s selection of Cardno Entrix as the Keystone XL EIS third-party contractor."

Your claim seems to be at odds with the very report you have cited.

Another article that is at odds with yours:

Why do you cite a gov't report and then say things that are the exact opposite of what the report says? Were you hoping that nobody would actually click on the link? Or has someone else at NRDC mislead you?

BSFeb 13 2012 11:08 AM

No response?

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