Enbridge has finally received some regulatory recognition that its proposed new Minnesota oil pipeline is economically needed — but not exactly the endorsement it wanted.

Administrative Law Judge Ann O’Reilly’s much-awaited decision last week is suffused with skepticism about Enbridge’s Line 3 replacement project, with recommendations that could throw boulders into the company’s path and add $1.2 billion to its current $2.6 billion price tag.

O’Reilly is not shy about criticizing any of the stakeholders on the controversial and complicated project, and leaves a lot on the table for the state Public Utilities Commission (PUC) to consider as it makes its final decision in coming months.

Even though O’Reilly concludes that under Minnesota law there’s a need for a new Line 3 — the current 1960s era pipeline is carrying only half its capacity because of corrosion and other maintenance issues — she laments that the pipeline’s biggest beneficiaries are out-of-state.

“It is a bitter pill to swallow, however, that the ‘need’ for this project is to primarily assist foreign oil producers in transporting their products through [and mostly out of] Minnesota,” she wrote. While oil passing through Enbridge pipelines supplies Minnesota’s two refineries, most of it goes on to other markets.

Calgary, Alberta-based Enbridge is North America’s largest pipeline operator, and its “mainline” — six pipelines running across northern Minnesota to Superior, Wis. — is the largest conduit of Canadian crude oil into the United States. Enbridge is proposing a route for the Line 3 replacement that follows the current route to a point and then jogs south.

O’Reilly essentially concludes that the environmental risk to pristine land under the proposed new route is not worth it. She noted that 47 percent of Enbridge’s 340-mile proposed route currently contains no oil pipelines.

Heavy load for regulators

Her solution of extracting the current aging Line 3 and dropping another in its place not only would cost more, it would cross two reservations, requiring Enbridge to negotiate with Indian tribes that have made clear they don’t want a new pipeline on their land.

O’Reilly’s decision also concluded that Enbridge is likely to build at least one more pipeline beyond Line 3 on its proposed new route — something environmentalists have long feared, but Enbridge emphatically denies.

Environmental groups and Indian tribes said the new route opens up a new region of lakes, rivers and wild rice waters to degradation from potential oil spills.

O’Reilly’s examination was comprehensive, taking into account thousands of pages of documents and dozens of hearings and public meetings. The Line 3 proposal has been winding through the regulatory process for more than three years, and a final decision is expected in June by the PUC.

Administrative law judges like O’Reilly review contested cases before the PUC, and their decisions carry weight. The PUC also will take into account the opinion of the Minnesota Department of Commerce, which last fall concluded there was no need for a new Line 3.

The PUC will ultimately determine whether Enbridge will get a “certificate of need,” and if so, what route its new pipeline would follow.

O’Reilly took issue with some of Commerce’s conclusions, especially the department’s rejection of Enbridge’s argument that a new pipeline is needed because of “apportionment,” which is rationing from the company’s mainline corridor because of the corroding Line 3. Enbridge said it can’t meet the shipping demands of its customers, a condition that has existed for some time and will continue well into the future, she concluded.

Yet O’Reilly was skeptical of Enbridge’s oil demand forecasts, as Commerce was. She effectively said they could be too rosy.

And like Commerce, she said Minnesota’s two refineries — Flint Hills in Rosemount and Andeavor in St. Paul Park — did not prove they would be harmed if Enbridge’s Line 3 project was killed; they would continue getting an adequate amount of oil.

The refineries would, however, get some benefits from the new pipeline, including an easing of apportionment.

In deciding cases like Line 3, the PUC must consider future energy adequacy, reliability and efficiency for three groups: “the applicant [Enbridge in this case]; the applicants’ customers and the people of Minnesota,” O’Reilly wrote.

But the rule doesn’t differentiate the importance of the three groups: They are on an “equal footing,” she said.

Scott Strand, an attorney for the environmental group Friends of the Headwaters, questioned the idea of “equal footing,” saying there’s a “general presumption in Minnesota law that all of our statutes are read to mean for the benefit of the people.”

Strand, whose group opposes Enbridge’s project, said O’Reilly’s report spelled out relatively few benefits for Minnesota. “She really found the case for this new pipeline to be very weak.”

On removing the old Line 3

O’Reilly’s report, however, did note that the project would create important — albeit temporary — economic benefits for northern Minnesota. The $2.6 billion project would require more than 4,000 construction workers over a several-month period, and would create spinoff economic activity.

O’Reilly wrote that extracting old Line 3 — in addition to building a new pipeline — would create an even greater economic effect, since thousands of construction workers would be needed for removal, too.

In her report, O’Reilly repeatedly brought up the importance of removing the old pipeline — a position long held by some Line 3 opponents.

Leaving the old pipeline in the ground is risky, she wrote. The abandoned line can serve as a conduit for contaminated water. It could cause cave-ins or in watery areas, the old pipeline could rise and be exposed. And without removing old Line 3, it’s difficult to know if there’s any underground contamination around it.

Enbridge, however, has maintained that the abandoned pipeline would be safe: It would be drained of oil, cleaned out and capped.

Removing old Line 3 would be expensive, and would lead to a monthslong shutdown of the pipeline, taking 390,000 barrels a day of oil out of Midwestern markets. Those supply disruptions could raise gasoline prices in the region, Enbridge says.

Future pipelines possible?

In her report, O’Reilly notes that Enbridge has easements that could lead to building more pipelines along its proposed new route in the future.

The new Line 3 was originally paired with the Sandpiper pipeline, a $2.6 billion project that would transport North Dakota oil to Enbridge’s terminal in Superior.

Enbridge pulled the plug on Sandpiper in 2016 after it bought a stake in the Dakota Access pipeline, which bypasses Minnesota.

Yet Enbridge has retained its easements for Sandpiper, O’Reilly wrote. “The record indicates that [Enbridge] could have already purchased a majority of the easements needed to place at least two, but potentially up to four, pipelines in this new corridor.”

Enbridge denies it has such plans.

“That has never been our intent,” said Guy Jarvis, Enbridge’s liquids pipeline president. “The Sandpiper project is not going ahead and we do not have a plan to construct multiple pipelines through [the new] corridor.”

The company said it plans to relinquish the easements it has for the Sandpiper project.

Enbridge CEO Al Monaco last week also said it continues to believe its proposed route for the Line 3 replacement is “optimal,” that O’Reilly ignored some of the environmental review the state did to assess the route.

The company will continue to push for it with state regulators despite O’Reilly’s misgivings.