State Dept. IG: Keystone review wasn't biased

The State Department’s inspector general has concluded that the department’s review process for the controversial Keystone XL oil sands pipeline was above-board.

The new report, obtained by The Hill, was requested by lawmakers critical of the proposed pipeline who have alleged that State’s review process was marred by conflicts.

The Obama administration rejected a permit for the proposed Alberta-to-Texas pipeline in January, but invited developer TransCanada Corp. to reapply. Republicans are pushing bills that would mandate approval of the project.

The new IG report will likely give proponents of the pipeline political ammunition as they continue pushing for its approval, although pipeline opponents will seize on the finding that State's current procedures have several deficiencies.

Critics of State’s Keystone review had zeroed in on use of the firm Cardno Entrix as a contractor in crafting the environmental analysis of the pipeline, calling it a conflict of interest because of TransCanada Corp.’s relationship with the firm.

The 2011 environmental impact statement (EIS) gave the proposed pipeline a largely favorable review.

The IG audit “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.”

The IG’s audit, in rebutting conflict-of-interest concerns, notes that Cardno Entrix had previously worked as a contractor on two prior Federal Energy Regulatory Commission and two State Department pipeline reviews.

The audit notes that Cardno Entrix had received a “minimal” amount of work on two projects it had been associated with for many years that were bought by TransCanada in 2007 and 2008. It finds:

OIG determined that these relationships did not present a conflict of interest because they are not directly related to the Keystone XL project and are either federally controlled relationships or minimal financial relationships that would not “impair the contractor’s objectivity in performing the contract work” or “result in an unfair competitive advantage to a contractor.”

However, the report also calls on State to “redesign” the process for selecting third-party contractors “by maximizing the Department’s control of each step and minimizing the applicants’ role in the process” in order to reduce the “appearance” of improper influence.

The current process gives project applicants a hand in selecting potential contractors to conduct environmental reviews.

State, in its response included with the report, notes it is redesigning the process. Similarly, the report calls for revamping the way State uses third-party contractors to improve the “organizational conflict of interest screening process.”

Elsewhere the report notes that State “did not violate its role as an unbiased oversight agency.”

It also finds “no evidence that communications between Department officials, TransCanada, the Canadian Government, proponents, and opponents of Keystone XL deviated from the Department’s obligations under Federal law.”

But it faults State by noting that its “limited technical resources, expertise, and experience impacted the implementation” of the environmental review process.

The audit calls on State to improve the process, noting there should be at least one full-time position within State's Bureau of Oceans and International Environmental and Scientific Affairs filled by someone with “experience and expertise” in handling National Environmental Policy Act review.

State, in its response, notes it’s developing such a position.

—This post was updated at 12:31 p.m.