The Army Corps Of Engineers will now do an environmental impact study as ordered to by the district court.
The district court will review the remedies available during the time period that DAPL will be without the required permit.
Emptying the DAPL pipeline is the usual remedy in established law cases.
The fact that this management completed a pipeline and operated it before the permits were properly issued does not make this a ground-breaking case.
The appeals court is likely to send a discouraging message to keep other operators from trying to operate before permits are properly issued and disputes settled.
The last few articles have evoked a lot of comments on the correctness of Energy Transfer’s (NYSE:ET) management and the activism and political orientation of the judge. However, now that the Army Corps of Engineers has now agreed to do an Environmental Impact Study (EIS), it now appears that the judge was on far stronger legal ground than many comments would have indicated. This new development implies more risk for Energy Transfer holders than commenters were sure about just one week or so ago.
The usual remedy when an Environmental Impact Study needs to be done is to refuse to allow the pipeline to operate because there is not a valid permit for the easement where the pipeline is located. Maybe this is not normal for the midstream industry in general. But then again, this is the first time that a pipeline was completed (and began operations) before all the permit issues were resolved. The appeals court will probably want to make it clear that this situation is unacceptable so that no operator will ever be tempted to try this method of completing a pipeline again.
Source: District Of Columbia Circuit Court Of Appeals September 2020
Evidently the defendants now agree that an Environmental Impact Study (EIS) is now the best course of action. It has taken the defendants four years of wrangling to finally see things the way the court has been ruling for some time. This will considerably dim the hopes of all those who think this is headed to the Supreme Court of the United States for a showdown.
The fact is that the law being applied here has ample precedent in other areas. There is nothing new about the ruling or the solutions applied here. The only thing new was that Energy Transfer management completed and began operating the pipeline before the permit issues were settled. Energy Transfer has been shown as a defendant on these legal proceedings from the start. Therefore, the assumption that management knew the risks it was taking is not exactly a giant legal leap of faith.
That means the very much feared ruling of “empty the pipeline” is probably not out of line either. Such a ruling is only a first for this industry because Energy Transfer management made it a first by backing the courts into a legal corner. As the appeals court noted, the defendants have been trying for four years without success to alter the original 2017 order. The latest change in stance by the Army Corps of Engineers is the first indication that the courts have the legal rulings on sound ground. Chances are excellent that the rest of the ruling stands.
So many do not realize that judges do not want to be overruled. It is not very good for one’s professional reputation to be repeatedly corrected upon appeal. Therefore, the judge will do a fairly good job on any decision before defendants appeal. The fact that successful appeals make it into the newspapers indicates how seldom a successful appeal is.
One thing the appeals court did ask the judge to do is review the options during the time period for which the Army Corps intends to do the EIS. Supposedly those options were submitted. One of those options clearly is to allow the pipeline to continue to operate without the proper permit. But against this option is the actions of the defendants to not only complete and operate the pipeline, but also to delay doing an EIS for four years. Therefore those hoping that Energy Transfer can continue to operate the pipeline without some “remedy” to encourage the Army Corps to get this EIS study done may be hoping for an unlikely outcome. No court wants repeated trips to the court for more wrangling. Most courts are very busy and therefore look to minimize the required amount of work on any case.
The good news is that the shareholders should at least begin to know the penalty phase of this dispute within a month or two. The bad news is that once the liabilities of the Dakota Access Pipeline begin to be valued, the partners are likely to consult their lawyers next. The result is that Energy Transfer could have to resolve this dispute over the next several years (probably by using money that would have gone to common unit holders and maybe by also using money that would have gone to preferred holders). At this point the maintenance of the investment-grade rating for the debt appears to be problematic.
Source: Energy Transfer Investor Presentation September 4, 2020
The bulls will point to the adjusted EBITDA outlook shown above as proof that the company can handle whatever happens to the DAPL dispute. However, one needs to consider that the liabilities have little or nothing to do with the EBITDA contributed by the pipeline partnership to Energy Transfer. The liabilities and remedies will be calculated according to law with the potential to far exceed the income generated by the pipeline so far.
There is also the consideration that the Army Corps now admits it allowed this company to operate in essence without a permit. You can just bet the plaintiffs will be screaming for compensation for that.
Furthermore, the Army Corps Of Engineers also admits that it broke its own established procedures by allowing the protestors access to some places without a permit. The state of North Dakota is now suing to recover $38 million of costs as a result. In short those protests were disruptive because the Army Corps of Engineers allowed the disruption. People have the right to protest. But it was the Army Corps that needed to enforce the appropriate guidelines and rules. Really the Army Corps is now appealing while having to stay it followed virtually none of its established procedures for anything related to this dispute.
But that does not allow Energy Transfer management to escape liability for taking advantage of this mess. Any of us dealing with government have long known the “ignorance of the law is no excuse”. We have also been caught in it a few times and that does not at all feel good. The only time you can sue the government for damages (as a general rule) is when the government allows you to sue for damages. Most know that suing for damages in a private industry situation is entirely different.
What also makes this a problem is that most states have a “comparative liability” law. Therefore, plaintiffs only have to prove that Energy Transfer at least was partially at fault to be liable for the damages incurred. It may not appear to be fair, but the law has worked this way for a long time.
Therefore, one would have to conclude that Energy Transfer could pay a lot of money to settle the DAPL dispute. It is still possible for the company to escape with some “scrapes and bruises”. But the change in the stance of the Army Corps of Engineers appears to make that less likely. If the Army Corps thought that it could still escape an EIS, then it would still be fighting hard in court. But that also means the Army Corps and Energy Transfer have now wasted about four years of taxpayer money and court time. The remedies knowing of that delay will be interesting to hear when the court determines those remedies.
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