KXL: Surprise! Economists Do Not Agree

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1 KXL: Surprise! Economists Do Not Agree by Michael J. O Hara, J.D., Ph.D. Univ. of Neb. at Omaha mohara@unomaha.edu presented to the Nebraska Economics and Business Association October 27, a KXL Surprise! Economists Do Not Agree 1

2 TransCanada (TC) has engaged in extensive study and planning so that TC would be authorized to build the KXL pipeline from northern Alberta Province to near the refineries in Houston, Texas; for refinement into various oil products and then subsequent sale to customers on the Pacific Rim. Starting back in 2010 as part of the Keystone Pipeline System, TC desired the Keystone XL (export limited: a.k.a., KXL) pipeline. In early 2017 President Trump s approval reversed President Obama s late 2016 denial. The last approval TC needed for the KXL is from the Nebraska Public Service Commission (PSC). The PSC is required to grant or deny route approval no later than Nov. 23, KXL will transport dilbit (diluted bitumen) created from oil sands KXL Surprise! Economists Do Not Agree 2

3 The PSC limited the evidentiary contributions of all persons. No one was allowed to discuss safety of the pipeline; nor to discuss leaks or the risk of leaks. The PSC perceived those two issues as excluded from PSC authority by either federal preemption and/or Nebraska statute. All parties other than TC and the landowners were assigned narrowly defined topics (e.g., Indians only address cultural heritage issues; unions only address labor economic issues) KXL Surprise! Economists Do Not Agree 3

4 All forms of science were included in TC s USA application and in TC s Nebraska application. In the specially adopted Nebraska statute, the Major Oil Pipeline Siting Act (MOPSA) both TC was required to study and the PSC was required to review (4) (a) through (4)(h) (4) (d) reads: Evidence regarding the economic and social impacts of the major oil pipeline KXL Surprise! Economists Do Not Agree 4

5 The USA State Department conducted economic analysis Creighton University Professor Ernie Goss authored TC application appendix H Socioeconomic Report. Subsequent to O Hara s report being made available, Dr. Goss also authored a rebuttal to Professor O Hara s testimony KXL Surprise! Economists Do Not Agree 5

6 Opponents to TC s application before the PSC included landowners, environmental groups (e.g., Sierra Club; Bold Nebraska); and several Indian Tribes (e.g., Ponca; Sioux). Supporters of TC s application included unions (e.g., pipefitters). %20Bill%20Gerhard%20(6-6-17).pdf ng%20&%20pipe%20fitting%20industry/barnett%20direct%20testimony%20(united%20association).pdf 2017 KXL Surprise! Economists Do Not Agree 6

7 All of the landowners used one law firm: Domina Law Group. Domina hired experts to address many different, relevant topics. Domina hired two economic experts: [i] Stockman, and [ii] O Hara. Early in the KXL process, Loren Stockman of Cornell University authored a report of the KXL job creation process. Then, as a Domina retained expert, Stockman authored a 722 page report about the market context of KXL of the KXL job creation process. The PSC ruled the market context information barred by MOPSA KXL Surprise! Economists Do Not Agree 7

8 After TC s KXL application to the PSC, Michael J. O Hara of Univ. of Neb. At Omaha authored a report focused on eight economic questions What is the impact of the proposed KXL pipeline, along the proposed route, on property tax revenues in Nebraska, assuming current rates, over 20 years? 50 years? 2. What is the impact of the proposed KXL pipeline, along the proposed route, on Nebraska income tax revenues, assuming current rates, over 20 years? 50 years? 3. What is the impact of the proposed KXL pipeline, along the proposed route, on sales/use tax revenues, assuming current rates, over 20 years? 50 years? 4. What economic opportunities are likely to be disrupted or precluded by the existence of the pipeline in the location of the proposed route over the next 20 years? 50 years? 5. In terms of its economic advantages and consequences, does the proposed use of the pipeline route by the Applicant more appropriately resemble and approximate a route requiring a real estate interest in the form of a lease, or in the form of an easement? 6. What is the economic consequence of TransCanada s use of an easement, as contrasted with a lease to acquire and occupy the proposed route over the course of 20 years? 50 years? In the case of removal of the depleted pipeline? 7. What are the likely economic consequences upon Nebraska and its counties for any enhancements in expenses attributable to a) pipeline construction? b) pipeline maintenance? 8. What is my analysis of the economic study and report of TransCanada economist, Dr. Ernie Goss? 2017 KXL Surprise! Economists Do Not Agree 8

9 The PSC itself hired economics experts (i.e., commission consultants) to address questions of specific interest to the PSC. The PSC hired [NEBA members] Ron Konecny and L. Allen Jenkins, both of the Univ. of Neb. at Kearny. They authored three documents The PSC hired the Flatwater Group which authored two documents KXL Surprise! Economists Do Not Agree 9

10 Goss used and O Hara critiqued Goss use of the IMPLAN method of multipliers. Konecny and Jenkins explained in more detailed the IMPLAN methodology. Goss and O Hara arrived at different property valuation estimates. Konecny and Jenkins provided a third, differently focused analysis. Flatwater Group s report addressed in more detail issues (e.g., recreation valuation) raised by Goss and/or O Hara and/or Konecny & Jenkins. Only O Hara found cause for materially lowered property values KXL Surprise! Economists Do Not Agree 10

11 The law does not seek THE TRUTH. The law seeks that truth knowable via the rules of evidence and via the rules of procedure. e.g., There are two types of witnesses. [1] a Sargent Joe Friday witness: Just the facts, ma am. [2] an expert (read: opinion) witness. An expert s opinion is a fact to the law. Think about the degree of scatter in lay opinion versus expert opinion KXL Surprise! Economists Do Not Agree 11

12 Perry Mason s constant adversary, Hamilton Burger would routinely object Improper cross examination Incompetent Immaterial Irrelevant KXL Surprise! Economists Do Not Agree 12

13 FRE 401: Evidence is relevant if: (a) and (b) Relevant it has any tendency to make a fact more or less probable than it would be without the evidence; the fact is of consequence in determining the action. Routinely, the PSC ruled that MOPSA rendered many issues not relevant KXL Surprise! Economists Do Not Agree 13

14 Competent Rule 601. Competency to Testify in General. Every person is competent to be a witness unless these rules provide otherwise. But in a civil case, state law governs the witness s competency regarding a claim or defense for which state law supplies the rule of decision. Rule 602. Need for Personal Knowledge A witness may testify to a matter only if evidence is introduced sufficient to support a finding that the witness has personal knowledge of the matter. Evidence to prove personal knowledge may consist of the witness s own testimony. This rule does not apply to a witness s expert testimony under Rule KXL Surprise! Economists Do Not Agree 14

15 Rule 703. Bases of an Expert Competent An expert may base an opinion on facts or data in the case that the expert has been made aware of or personally observed. If experts in the particular field would reasonably rely on those kinds of facts or data in forming an opinion on the subject, they need not be admissible for the opinion to be admitted. But if the facts or data would otherwise be inadmissible, the proponent of the opinion may disclose them to the jury only if their probative value in helping the jury evaluate the opinion substantially outweighs their prejudicial effect KXL Surprise! Economists Do Not Agree 15

16 Material Broadly, material is something big enough to change the mind of The Reasonable Person. The FRE do not directly define material, but either the text of the FRE or the official comments to the FRE, frequently use material. Rule 103. Rulings on Evidence Rule 401. Test for Relevant Evidence Rule 403. Excluding Relevant Evidence for Prejudice, Confusion, Waste of Time, or Other Reasons Rule 404. Character Evidence; Crimes or Other Acts Rule 408. Compromise Offers and Negotiations Rule 412. Sex-Offense Cases: The Victim Rule 502. Attorney-Client Privilege and Work Product; Limitations on Waiver Rule 609. Impeachment by Evidence of a Criminal Conviction Rule 703. Bases of an Expert Rule 804. Hearsay Exceptions; Declarant Unavailable Rule 807. Residual Exception Federal Rules of Evidence Rule 901. Authenticating or Identifying Evidence Rule 902. Evidence That Is Self-Authenticating 2017 KXL Surprise! Economists Do Not Agree 16

17 Proper Cross Examination Trial testimony initially is elicited by the summoning litigator. This is direct examination testimony. Then the opposing litigator conducts cross examination. Cross examination is limited to topics raised on direct. Cross examination is followed by re-direct; and that by re-cross. Each stage is narrower than the preceding stage as each is limited by the scope of the preceding stage. The PSC process was peculiar. All direct testimony by affidavit filed weeks prior to the hearing. Thus, oral testimony starts with cross KXL Surprise! Economists Do Not Agree 17

18 Is different the same as opposite? Not at all. Recall the four blind men examining an elephant. Finding common ground: hot tubing experts KXL Surprise! Economists Do Not Agree 18

19 Every economic technique acts as blinders on the expert. The legal minimum is to disclose if asked. Rule 705. Disclosing the Facts or Data Underlying an Expert Unless the court orders otherwise, an expert may state an opinion and give the reasons for it without first testifying to the underlying facts or data. But the expert may be required to disclose those facts or data on cross-examination. The ethical maximum is to disclose before asked. The work of each expert ought to be capable of being replicated by every subsequent expert KXL Surprise! Economists Do Not Agree 19

20 Every economic technique acts as blinders on the expert. There is none so blind as those who will not see KXL Surprise! Economists Do Not Agree 20

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