In a high-stakes hearing, Minnesota appellate judges had sharp questions Tuesday for the Minnesota Public Utilities Commission (PUC) and Enbridge about the ultimate need for the company's new oil pipeline across northern Minnesota.

The Minnesota Department of Commerce, along with several pipeline opponents, have challenged Enbridge's long-term oil demand forecast, which the PUC accepted when it approved the company's controversial new Line 3.

While the $3 billion-plus pipeline is half-built, the Minnesota Court of Appeals could freeze work if it rejects Enbridge's oil demand forecast.

A key issue before the court: Is the forecast simply a reflection of Canadian oil producers' supply projections? "It seems to take the approach of 'If we build it, they will come,' " Judge Peter M. Reyes Jr. said Tuesday during questioning.

A three-judge panel of Reyes, Lucinda Jesson and Michael Kirk also heard arguments Tuesday on other challenges to the PUC's Line 3 approval, including whether the project's environmental review adequately considered effects of an oil spill in the Lake Superior watershed.

The court has 90 days to make a decision on the appeals.

The Commerce Department and pipeline foes have long argued that oil demand — including from Canada — will fall as the world migrates from fossil fuel, including by adopting electric vehicles. Enbridge's forecast didn't properly account for that transition, they say.

Enbridge has long argued that its corridor of pipelines across northern Minnesota is so full that it can't meet oil shippers' demands — a condition that will continue for a long time. The PUC agreed, as it did with Enbridge's contention that new Line 3 is needed for safety.

The current Line 3, one of six Enbridge pipelines across northern Minnesota, is corroding and can only run at half-capacity for safety. Calgary-based Enbridge, however, has continued running the old pipeline safely by essentially patching it up.

At the heart of a continuing debate is the definition of oil demand under state law and PUC regulations.

The Department of Commerce, which does research and other public interest work for the PUC, argues that by state law, demand is rooted in refineries' need for oil — and thus ultimately by consumers' need for products like gasoline.

"Crude oil is only consumed by refineries, but that demand is driven by consumer demand for refined products," Katherine Hinderlie, an attorney for the Commerce Department told the court.

Jesson noted to Hinderlie that Minnesota's two oil refineries both support new Line 3. "We have refineries in Minnesota who say there is demand," she said.

Hinderlie replied that refinery support isn't the proper yardstick; energy demand is, and well beyond Minnesota, too. A minority of oil flowing on Enbridge's pipeline is used here; the rest goes to refineries in the Midwest and as far as the Gulf Coast.

The PUC argues that Enbridge's 15-year forecast lived up to its own rules — and thus state law — by demonstrating adequate demand from "willing and able purchasers:" Enbridge's customer base of shippers, oil marketers and refineries.

"The definition of demand comes from the commission," Jason Marisam, an attorney for the PUC told the court. The forecast does not need "a separate projection of consumer demand," he added.

He said Enbridge's forecast assumes constant demand for oil by refineries.

For several years, Enbridge has had to ration space to shippers on its Minnesota oil pipelines, a condition known as apportionment. "We know at least today that there is [demand] because there is apportionment on the pipeline," Jesson said.

But she also said that "I really struggle with the demand forecast for 15 years."

Reyes seemed to concur, noting that Enbridge's forecast relies on projections by a trade group of Canadian oil producers. "You are talking about supply. ... Where is the information in the report about demand?" Reyes asked the PUC's attorney.

"How much oil is going to come through the pipeline applicant's facilities — that is demand," Marisam responded.

Christina Brusven, an attorney for Enbridge, said that the company appended its original oil demand forecast to account for increasing electric vehicle usage.

Assuming a 75% EV penetration of the U.S. vehicle market, refinery demand does go down — but not enough to change demand for Line 3, she said.

Jesson then brought up an administrative law judge's report on Line 3, which said that global policy changes on fossil fuels will cut demand for oil — but that no party in the Line 3 proceeding ever quantified such an effect.

"Isn't that Enbridge's duty when they put in an application for a certificate of need [for the pipeline]?" Jesson said.

Reyes appeared to question the continued relevance of Enbridge's forecast, which is based on 2016 data. The data "looks very stale," he said.

The PUC unanimously approved Line 3 in 2018. It reapproved the project in early 2020 after the appeals court rejected the pipeline's environmental impact statement. The second PUC vote was 3-1 after Commissioner Matt Schuerger reversed his vote to "no."

Reyes pointed to the dissent, noting Schuerger's 2020 conclusion that Enbridge's oil demand forecast was significantly flawed.

Brusven said the majority of the PUC "very carefully considered" the same oil demand factors that Schuerger did, but still reapproved Line 3 last year.

Petitioners before the appellate court Tuesday also included the Red Lake Band of Chippewa; the White Earth and Mille Lacs bands of Ojibwe; Indigenous environmental group Honor the Earth; and three other environmental groups: Friends of the Headwaters, the Sierra Club and Youth Climate Intervenors.

Mike Hughlett • 612-673-7003