TransCanada s Legal Actions Against US Government Over Rejection of Keystone XL

Transcription

1 ACC Energy Committee Quick Hit March 16, 2016 TransCanada s Legal Actions Against US Government Over Rejection of Keystone XL Jacob Dweck, Partner Stephany Olsen LeGrand, Associate Washington D.C., Houston, Texas Sutherland Asbill & Brennan LLP

2 2 What We Plan to Discuss Ø The Keystone XL saga: background to frame TransCanada s actions Ø TransCanada s lawsuit in federal court to reverse the President s rejection of Keystone XL cross border permit Constitutional arguments and precedent Ø TransCanada s notice of arbitration under NAFTA s investor-state dispute settlement (ISDS) provisions seeking $15 billion in damages Applicable NAFTA provisions TransCanada s claims Ø Broader implications and observations US environmental review of energy projects for climate change effects ISDS provisions in international trade agreements

3 3 Background for TransCanada s Legal Actions Ø The President has delegated authority to the State Department to review application for permit to construct a cross-border pipeline States have authority over pipelines on their land (no federal jurisdiction) Ø TransCanada files application for Keystone XL in 2008 Obama denied it Nov after a number of lawsuits, changes and delays Ø During 7-year period, State Dep t held multiple proceedings, collected a great deal of evidence, and found that Keystone XL would not significantly contribute to climate change Ø Congress passed legislation requiring the President to rule on Keystone XL within 60 days, and President rejected permit saying more review time was necessary Ø Congress passed second legislation requiring approval of Keystone XL, which President vetoed and Congress failed to override

4 4 Background: Reasons for President s Denial of Permit Ø Keystone XL faced huge opposition from environmentalists in US and Canada extremely heated climate change at core Ø When denying the permit, the President determined Keystone XL would not be in the national interest. President said: Pipeline would not make meaningful contribution to US economy and jobs Pipeline would not lower gasoline prices Keystone XL would not improve US energy security; reduce reliance on dirtiest crude oil Pipeline would not enhance US transition to renewable energy, clean economy Approval would undercut US leadership on climate change Ø President s decision appears political and symbolic, driven by desire to show world leadership in the fight against climate change not based on environmental record

5 TransCanada s Investments, Expenditures and Lost Revenues 5 Ø With the expectation that its permit would be granted, as no other cross-border pipeline permit was denied before, TransCanada made significant investments and expenditures, including Constructing two legs of the Keystone system in the United States Purchasing land and passage rights Costs and investment in Keystone XL (some $2.5 billion) Ø TransCanada took US$2.0 billion charge in Q4 2016, indicating level of direct unrecoverable expenses Ø TransCanada claims investments and expected profits over life to pipeline total $15 billion

6 6 President s Legal Authority Over Cross-Border Pipelines Ø President s authority over cross border activities is said to reside in his/her inherent, constitutional power to conduct foreign policy Ø Congress did not legislate in the area of cross border pipelines Ø President Johnson in 1968 issued first Executive Order (11423) exercising Presidential authority over cross border infrastructure Ø Executive order (4/30/04): Issued by President G. W. Bush to streamline process and cites his constitutional authority to issue cross border permits Ø NEPA requires environmental review of all major federal actions significantly affecting the quality of the human environment State Department conducts NEPA review under Executive Order 13337

7 District Court Precedent To Date Precludes Judicial Review of Cross Border Pipeline Permits 7 Ø Several district courts held that the grant of a permit to a crossborder pipeline under Executive Order is not subject to judicial review Ø Ø Sisseton (2009) held President has sole authority because Congress has not exercised legislative authority over such pipelines Sierra Club (2010) cites Presidential authority over foreign affairs Ø White Earth Nation v. Kerry (D. MN, Civ , Memo Opinion and Order 12/9/15), involved NEPA challenges under APA to State Department actions regarding two Enbridge pipelines. Held: Presidential actions are not agency actions reviewable under the APA, based on separation of powers principles (Franklin v. MA, Sup. Ct. 1992) Fact that NEPA review is involved does not alter non-reviewability

8 8 TransCanada s Action in Federal Court: Legal Grounds 1 Ø TransCanada v. Kerry et. al. filed Houston federal court (complaint 1/6/16), and case is pending before Judge Hoyt Ø TransCanada claims generally that the Obama acted unconstitutionally in denying the pipeline permit because Congress never passed legislation, exercising its power under the Commerce Clause, to vest such power in the President There is thus no criteria for the President to use (unlike gas pipelines or power assets) Ø TransCanada argues that the President is not empowered to reject pipeline for purely political motivations (and contrary to its NEPA findings) and that, in all events, Congress has expressed its views that Keystone XL should be approved

9 9 TransCanada s Action in Federal Court: Legal Grounds 2 Ø TransCanada primary precedent: Youngstown Sheet & Tube v. Sawyer, 72 S. Ct. 863 (1952): Establishes tripartite scheme for evaluating Executive action. Pursuant to express or implied authorization of Congress à Maximum power Absence of grant or denial à Rely on independent powers or twilight zone of concurrent authority Incompatible with will of Congress à Lowest ebb of power Ø TransCanada seeks injunction and declaratory judgment compelling issuance of Permit and precluding any future President from blocking Ø No damages claimed

10 10 US Opposition & Timeline Ø US opposition likely to assert President s decision is not reviewable by the courts in the realm of foreign policy: The President s power to authorize cross border pipelines has been exercised for 50 years and has been sustained by the federal courts President has constitutional and sole authority to control activities on US borders Congress has not legislated criteria for review of cross border pipeline Ø March 3 rd Scheduling Order US: Dispositive motion filed by April 1, 2016 TransCanada: Response due May 2, 2016 Amicus Curiae: April 8, 2016 (US) and May 9, 2016 (TransCanada) US: Reply due June 2, 2016 TransCanada: July 1, 2016

11 NAFTA Investor-State Dispute Settlement (ISDS) Provisions 11 Ø NAFTA Chapter 11 authorizes a private entity to seek damages in an ISDS arbitration against any a signatory country on specified grounds: Articles 1102 and 1103 national and most favored nation treatment; no discrimination against foreign investors Article 1105 and 1110 dealing with expropriation-type claims Ø NAFTA does not provide for mechanism to reverse decision Ø Home Country of private party has no role Ø Claims decided by independent arbitrators not appealable to national courts. Ø No Canadian company has ever won a NAFTA Ch. 11 claim v. US, but Keystone XL case presents unique facts

12 TransCanada s Notice of Intent to Submit a Claim to NAFTA Arbitration 12 Ø TransCanada filed a notice of claim (1/6/16) under the ISDS provisions, indicating intent to initiate arbitration for $15B in damages Ø TransCanada asserts denial was not based on merits -- was arbitrary and unjustified -- depriving the company of its investment Permit denial was discriminatory of Canadian investments and crude oil v. US crude oil, as President approved a number of US domestic crude oil pipelines at same time Denial was not based on environmental reasons, as State Department concluded there would be no significant climate change impact. Numerous delays, and final decision based on politics, are tantamount to expropriation of investments already made Ø NAFTA arbitration will take years

13 13 Some Scenarios and Observations 1 Ø TransCanada seeking to preserve right to construct pipeline if market conditions change in the future Ø Posture of federal lawsuit if a Republican wins the White House All Republican candidates said they would approve Keystone XL Trump said he wants to renegotiate the deal with TransCanada (e.g. for 1/4 of profits for US) Ø Even if TransCanada loses, court could make finding helpful for NAFTA ISDS case Ø Implications of NEPA review for GHG impact on any federal action required for any future pipeline infrastructure

14 14 Some Scenarios and Observations 2 Ø Use of investor-state provisions to challenge governmental climate change and other environmental programs Ø Broader consequences of TransCanada s NAFTA claim for future of investor-state provisions in international agreements Trans Pacific Partnership (TPP)

15 15 Questions? Jake Dweck Stephany Olsen LeGrand