To: Nebraska Easement Action Team Officers and Directors From: David A.

Domina Confidential until approved for Release by NEAT Board. (See 29) Date: February 9, 2014 Re: Confidential. Brief Review of 1/31/14 Final Supplemental Environmental Impact Statement, Keystone XL Project, U.S. Department of State. Introduction 1. The U.S. State Dept.s Final Supplemental Environmental Impact Statement (EIS or Report) on the TransCanada Keystone Pipeline LP1 application for a Presidential Border Crossing Permit for its proposed pipeline is out. The Report was issued January 31, 2014. The proposed structure would transport tar sands oil from northwestern Alberta to the Gulf of Mexico for refining there, or along the way, and for export when refined. The State Dept. Studys project manager is Genevieve Walker, 2201 C Street NW, Room 2726, Washington DC 20520. Cooperation in the EIS came from ten (10) federal agencies or sub-agencies, one assisting federal agency, and various state and local agencies, including the Nebraska Dept. of Environmental Quality. The EIS is found in eleven (11) volumes, including appendices.2 These general comments provide overview from a quick reading; they are not exhaustive. The EIS is issued to evaluate proposed project compliance with the National Environmental Protection Act.3 The Background section recites that TransCanadas first application was filed 9/19/08. This Section notes previous concerns over the environmentally sensitive Sand Hills Region of Nebraska. It recites that a special session of the Nebraska Legislature was called to deal with the subject in Nebraska, but it details no results of the State Legislatures action. This EIS does not recite that the action taken by the Special Session was later undone by the Legislature in LB1161. It does not note that a serious challenge to LB1161s validity is awaiting a judicial decision.

2.

The EIS does not detail who TransCanada Keystone Pipeline LP is, or is owned by. TransCanada is an affiliate of Marketlink, LLC as disclosed by an agency ruling of 7-31-13, by the Federal Energy Regulatory Commn (FERC). 144 FERC P 51086, 2013 WL3942992. 2 Through Executive Order (E.O.) 13337, 69 Fed. Reg. 25,299 (May 5, 2004), the President of the United States delegated to the Department of State a narrow measure of his constitutional authority over foreign relations and management of international borders. Specifically, the Department of State makes a national interest determination approving or denying applications for the construction, connection, operation or maintenance of any facility at the border of the United States that involves the exportation or importation of petroleum and other fuels. 3 NEPA serves the goal of ensur[ing] that the agency will inform the public that it has indeed considered environmental concerns in its decision making process. Baltimore Gas & Elec. Co. v. Natural Resources Defense Council, Inc., 462 U.S. 87, 97 (1983).
BZ0872

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The EIS notes that on 5/4/12 (after constitutionally tenuous LB1161 was enacted in Nebraska) TransCanada filed a new application for a Presidential Permit. On 5/24/12 the NDEQ entered into a Memorandum of Understanding with the State Dept. for a collaborative environmental analysis of alternative routes within Nebraska consistent with NEPA. Nebraskas governor approved on 1/22/13. The Report notes that the new proposed route is 509 miles shorter than the previous route overall, but nineteen (19) miles longer in Nebraska to avoid sensitive areas including the NDEQ-identified Sand Hills Region. It does not identify the construction costs reductions associated with the new route, which reduces project length by about 30%. 3. It is unlikely Nebraskans will believe a nineteen (19) mile adjustment is sufficient to avoid the Ogallala Aquifer. The Sand Hills and the Aquifer do not overlap in Nebraska. They do coincide in part, but only in part. The State Dept. EIS seems to confuse the Sand Hills with the Ogallala aquifer in several instances. The EIS is not a document that announces a decision about whether the border crossing will be permitted, or not.4 This remains a Presidential decision. Overview of Proposed Project 5. The Proposed Project Overview recites that the project will now consist of 1,204 miles of thirty-six (36) inch diameter pipe. Of this, 327 miles will be in Nebraska and 875 miles in the United States. The pipeline will deliver 830,000 barrels per day of crude oil. 555,000 bpd (63.5%) of WCSB (Western Canada Sedimentary Basin) crude oil is contracted for delivery points in the Gulf Coast area. 155,000 bpd 26.5%) are to go to Cushing, Oklahoma to be refined. Purpose, Role & Need 6. The Overview says the Applicants stated that the primary purpose is to provide the infrastructure to transport WCSB crude oil It will also supply some capacity for Bakken sweet crude oil. It proposes to make 100,000 bpd (11.4%) of project capacity available to the Bakken for U.S. produced oil. The purpose and role of the State Dept. EIS is related to the conduct of foreign affairs. The State Dept.s national interest determination takes into account many factors, including impacts associated with issuance of a permit, such as environmental, cultural and economic considerations.

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State Dept.. Keystone XL Pipeline Fact Sheet, 2014. http://keystonepipelinexl.state.gov/documents/organization/221283.pdf;

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Market Analysis 8. The EIS contains a market analysis. This 150-page section discusses increased production of crude oil, significant investments in the WCSB, and a projected capacity there of 700,000 bpd of crude oil by the end of 2014, with the likelihood that this will increase to 1.1 million bpd, consisting of conventional and oil sands oil. Interesting maps detailing locations, activities and circumstances, including construction sites along the way are noted so facilities might be utilized for offloading, etc. The EIS notes that over the long term, lower-than-expected oil prices could affect the outlook for oil sands production, and in certain scenarios higher transportation costs resulting from pipeline constraints could exacerbate the impacts of low prices. P.1.4-8. The Report notes that the dominant drivers of oil sands development are more global than any single infrastructural project oil sands production and investment could slow or accelerate depending on oil price trends, regulations, and technological developments . . . . Id. Observes: 8.1. 8.2. The EIS reviews the world market demand and the U.S. market. The EIS notes (1.4-25) that crude oil imports fell from 10.1 million bpd in 2005 to 8.5 million bpd in 2012 in the United States. Bitumen is discussed in some detail (1.4-29 et seq.) The EIS notes that due to its viscosity, bitumen cannot be transported by pipeline on its own. It first must be mixed with a petroleum-based product (called a diluent) such as naphtha or natural gas condensate The result is a dilbit, composed of 30% diluent and 70% bitumen. Bitumen can be transported to market by rail undiluted. Costs of oil sand production are discussed in detail (1.4-34 to 1.4-46). 1.8 Preparation of Publication recites the principal objections of this final supplemental EIS with four bullet points: 8.3.1. Identify and assess potential impacts on the natural and human environment; 8.3.2. Describe and evaluate reasonable alternatives, including a no action alternative; 8.3.3. Identify and recommend specific mitigation measures; 8.3.4. Facilitate public, tribal and agency involvement.

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The EIS notes that the Dept. received 1,513,249 emails, letters, cards, e-comments and instances of public testimony during the public comment period. 1,496,396 were nongovernmental organizations. 16,853 submissions (1% of the total) were identified as unique submissions. See pg. 1.8-12. Part 2.0 Description of Proposed Project and Alternatives, deserves comment. The Proposed Project will include approximately 274 miles to be built in Nebraska. This compares with 285 miles in Montana and 316 miles in South Dakota. Nebraska will also be the site of five (5) pump stations, an unknown number of permanent access roads and fifteen (15) main line valves. The description includes routes with at least eleven (11) modifications to the original project route to accommodate specific concerns in Nebraska. The EIS sets forth alternate routes, including one (1) to avoid the Village of Clarks Wellhead Protection Area. The Project Description notes that construction campsites will be established on approximately fifty (50)-one hundred (100) acres. The camps would be constructed using modular units and would provide the required infrastructure and systems necessary for complete food service, housing and personal needs. The EIS discloses that each camp would contain 600 beds and 300 recreational vehicle spots and that Keystone conservatively intends to permit each camp for 1,000 residents to allow for those instance where there may be more than one person in a recreational vehicle. At 2.1.32 of the EIS, the pipeline construction procedure and sequence is detailed. The affected environment is discussed in volume two (2), at chapter three (3). Part 3.3 deals expressly with water resources. It refers to major proposed route modifications in much of Nebraska necessitated new data collection and analysis including wells, locations etc. It also refers to a major new alignment in the Sand Hills portion of Nebraska 3.3-1. The EIS does not say the Ogallala Aquifer, or the Nebraska Sand Hills, have been entirely bypassed in any location I identified during review of the Report. Section 3.13 deals with Potential Releases. The Report states the discussion on spill volume distribution has been revised based on Pipeline and Hazardous Material Safety Administration (PHMSA) data. A series of potential causes of spills are listed. They include:

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External corrosion; Internal corrosion; Stress corrosion cracking; Manufacturing; Construction; Equipment; Third-party damage; Incorrect operations; Weather related and other natural forces. 15. Three (3) size categories for spills are recited: Zero to fifty (50) barrels; Fifty (50) to 1,000 barrels; More than 1,000 barrels. One barrel consists of 42 U.S. gallons, or about 159 liters. 16. Spill Risks are described by reference to the U.S. Department of Energys Pipeline & Hazardous Materials Safety Agencys data sets. This historical information about spills is included in the EIS at its Appendix K.

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The context required to understand this data includes the total mileage of pipelines in service during the study period. This data is also found at Appendix K to the EIS:

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Spill risk observations form PHMSA data is summarized in Exh K:

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18.

The EIS refers to the Oil Spill Liability Trust Fund5 which it says may be utilized should federal intervention be required. However, as the result of a recent ruling6, TransCanada does not make contributions to this fund. I am uncertain whether the fund will cover the spill of a company that does not participate in making contributions to the Oil Spill Liability Trust Fund. No legal precedent known to me addresses this issue. Global crude oil characteristics are set out for some of the various types in the EIS at Table 3.13-2, page 3.13-11). Flammability and explosion potential is discussed 3.13-13. Crude oil is flammable and has a flashpoint lower than one hundred (100) deg. F. It is considered flammable. The flashpoint of fresh dilbit like that to be carried in the pipe is initially lower than that found in other oil types and comparable to that of a diluent. 3.13-13. It says an explosion within a closed pipeline where there is insufficient oxygen and no ignition source, is unlikely.7 3.13-14. Corrosion, pitting, and other mechanical risks are discussed in detail. 3.13-18 et seq. These risks are too long and numerous to summarize but are substantial.

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5 6

33 USC 2713; 33 CFR 136.1 et seq. See I.R.S. Tech. Adv. Mem. 201120019, at 2-3 (declaring that tar sands oil is not subject to the excise tax used to fund the Oil Spill Liability Trust Fund)(available at http://www.irs.gov/pub/irs-wd/1120019.pdf (explaining the exclusion of the tar sands). See also, Dept. of Treas Ltr 9-13-12 to Hon Edward Markey, 2012 WL4322082 (IRS Misc, WL 2012). 7 Pipeline hazard protection regulations appear at 49 CFR 195.1 et seq.

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Spill magnitudes are discussed. A small spill is less than fifty (50) BBL (2,100 gallons) 3.13-32. 22. Environmental impacts, themselves, are summarized in three-quarters of the page at 4.16-1. Simply, the summary of impact section of chapter four (4), Environmental Consequences, includes these requirements: Compliance with all applicable laws and regulations by the operator; Incorporation of 49 CFR 195.402 concerning conditions to be met; Incorporate mitigation measures; The Applicant would construct, operate and maintain the proposed project; and, The Applicant would implement measures designed to avoid or reduce impacts described in its application for a Presidential Permit. Page 4.16-1. Potential impacts are summarized in a lengthy chart at pp. 4.16-2-8. These potential impacts are substantial. They could arise from releases of crude oil, spills, greenhouse gases, climate change, and could affect air quality, surface and ground water quality, soils and geology, cultural and economic resources, wildlife, vegetation, fish and aquatic life, land use, socioeconomics such as transportation, utilities services, etc. 23. It is interesting that these projections about jobs are made at 4.16-4: 23.1. Permanently, potential impacts include thirty-five (35) permanent jobs and fifteen (15) temporary contractor positions that would result in negligible earnings effects. 23.2. During construction about 42,100 jobs across the United States, of which approximately 16,100 would be direct jobs at firms awarded contracts for goods and services and approximately 3,900 would be direct construction jobs if the proposed project area were to occur. The estimated 3,900 direct construction jobs are calculated over one (1) year of construction or 1,950 per year over two (2) years and are across four states: Montana, South Dakota, Nebraska, and Kansas. This is approximately 2.2 jobs per mile within the United States. The EIS does not say whether this includes advance land men or lobbyists who have been working for years in Nebraska and elsewhere. The direct payroll would be $840 million, and the

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indirect would be approximately $2.05 million in employee earnings including secondary suppliers etc. Temporary job creation is somewhat significant, but permanent job creation is obviously negligible. 23.3. At page 4.16-6, greenhouse gas operations are discussed. It is disclosed that during construction, the equivalent to annual greenhouse gas emissions will be approximately 50,000 passenger vehicles, CO2 emissions approximately 12,000 homes, and annual CO2 emissions approximately 0.07% of a coal-fired power plant. Operating emissions will be equivalent to about 300,000 passenger vehicles, energy consumed by 72,000 homes for one year or annual CO2 emissions of 0.4 coal-fired power plants. 23.4. Indirect lifestyle GHG emissions are also discussed. Notes that the equivalent annual life cycle of greenhouse gas emissions is likely to be the equivalent to annual GHG emissions from combusting fuels in 271,000 to 5,708,000 passenger vehicles, or 65,000 to 1,369,000 homes for one year. 4.16-7. 23.5. Ex. K details historical pipeline incident analysis. This twenty-six (26) page section details how past spills were chronicled and studied. It is interesting but not revealing. Appendix U entitled Lifestyle Greenhouse Gas Car Emissions is 116 pages long. This section has only been skimmed. Conclusion 24. This is a short summary. According to the Report the bottom line is simply this: 24.1. Nearly no route changes of substance were made in Nebraska; 24.2. It does not appear as though the risks are mitigated significantly in Nebraska; 24.3. The spill risk is real and thoroughly documented. Oil spill modeling is included. See Appendix T. 24.4. Pipeline temperature affects studies, including expected changes in soil temperature profiles and variation with time and distance are included. Appendix S.

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24.5. Importantly life cycle greenhouse gas emissions are considered and discussed. One hundred sixteen (116) pages are devoted to this subject in Appendix U. 25. None of the news stories reporting on these matters have adequately summarized the circumstances. None appear to appreciate thoroughly the concerns expressed in the Report. The Report is not final agency action and does not foretell whether the President will issue a permit to build the pipeline. In our opinion, the data within the EIS supports the logic and need for basic easement terms for Nebraska landowners that contain these and other features: 27.1. All liability for spills or other environmental risks must be born solely by the pipeline owner and operator except those caused by the intentional, willful acts of the landowner. 27.2. Transfer of the easement to an unknown party who is not an applicant should be prohibited. This means any land crossing rights should terminate if TransCanada tries to transfer the pipeline or easements to a new owner 27.3. Any land crossing rights should require annual, not one time, compensation to the landowner whose livelihood is impaired by the pipelines presence on the land. Compensation should be based on pipeline revenues since it is clear that impingement on landowners will be ongoing from an environmental perspective. 27.4. The EIS does not comment on the obvious and substantial environmental risk at the end of the pipelines useful life. The risk is apparently intended to revert to the landowner. The risk is that the abandoned, corroded then unusable pipeline will be abandoned in place, becoming the problem of the landowner, because there is no requirement for TransCanada to remove it at the end of its utility. This is a potential cost that is impossible to estimate but could be far, far greater than the cost to construct the project. Easements should require removal of the pipeline from the land of each owner at the end of the projects utility and/or actual use. 28. Comment on the merits of the TransCanada Keystone XL Pipeline project is expressly withheld. No statements in this Memorandum are intended as comments for or against the project. Instead, the purpose is to inform Nebraska NEAT

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members and provide assistance at understanding the EIS. This Memo also offers brief comments about what terms should be considered in connection with any negotiation of land crossing rights by anyone in Nebraska dealing with TransCanada. 29. This Memorandum may be released to NEAT Members and / or others only upon approval of the NEAT Boards Majority that release may occur. This Memorandum does not express an opinion concerning the need for pipelines, or the benefits or detriments of tar sands oil, or transcontinental pipelines with limited U.S. utility. This Memo is an effort to summarize key aspects of a massive federal publication, not to restate the publications content. Concern is expressed, where it appears in these pages, about this particular project, TransCanada Keystone XL, due to its particular route, purposes, terms, and the ongoing behaviors of the Applicant in dealings with Nebraska landowners.

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DAD/iss