TC Energy and Alberta face long odds if they sue U.S. government over cancelled Keystone XL

© Provided by Financial Post Some financial analysts believe the best course of action for TC Energy is to abandon Keystone XL after spending 12 years trying to get it built.

CALGARY – TC Energy Corp. is now weighing its options after stopping work on its cancelled Keystone XL pipeline project, but any attempt to sue the United States government over the scrapped project has little chance of succeeding, legal experts say.

Following Joe Biden’s inauguration as U.S. president Wednesday, he took the widely expected step of cancelling the cross-border permit for the US$14.4-billion, Alberta-to-Texas heavy oil pipeline through an executive order.

The decision marks the third time a U.S. president has blocked the Keystone XL pipeline, which requires a presidential permit to cross the U.S. border: Barack Obama vetoed the line twice before Donald Trump issued a permit while in office.

Now, Biden has dealt what could be the final blow for the 830,000-barrels-per-day oil pipeline project that has been in regulatory purgatory and endless litigation since it was first proposed in 2008.

TC Energy in a release Wednesday said it was disappointed with the decision and will consider the company’s options. The Calgary-based pipeline giant also suspended work on the project and announced it expects to record a “substantive, predominantly non-cash after-tax charge to earnings in the first quarter of 2021.”

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Some financial analysts believe the best course of action for TC Energy is to abandon Keystone XL after spending 12 years trying to get it built and focus on other growth projects, including those in its natural gas business and power projects.

RBC Dominion Securities Inc. analyst Robert Kwan said in a note that walking away from the project “is likely the best-case scenario,” but attempting to recover costs through litigation is a “free option” for the company.

TC Energy did not indicate whether it would seek damages as it did in 2016 when Obama vetoed the pipeline, but has signalled a willingness to pursue other projects.

“Our base continues to perform very well and, aside from Keystone XL, we are advancing $25 billion of secured capital projects along with a robust portfolio of other similarly high quality opportunities under development,” chief executive Francois Poirier said in a release.

Alberta Premier Jason Kenney earlier this week indicated his government would file lawsuits seeking damages from the U.S. for cancelling the pipeline, in which the province took an ownership stake in 2020.

“I believe this is without precedent for an American administration to retroactively seek to cancel a piece of infrastructure, a border crossing, that already exists,” he said.

Energy and international trade lawyers said TC Energy and the Alberta government have a few options if they want to seek damages, including suing the Biden administration in federal court and/or launching a Chapter 11 case under the old North American Free Trade Agreement (NAFTA). Both are widely considered long shots.

A Chapter 11 complaint allows companies to challenge decisions by states and the provision to do so has been grandfathered into the new United States–Mexico–Canada Agreement (USMCA) until 2023, meaning that Alberta and TC Energy will need to file their complaints before then.

“Nothing is ever done in American law. TC Energy has been at this long enough that they should know that,” said Mark Warner, an international trade lawyer and principal at MAAW Law in Toronto. “They could file a complaint under the old Chapter 11 and make a case that this was arbitrary and a denial of due process.”

TC Energy tried both a Chapter 11 challenge and a federal lawsuit the last time the pipeline was blocked in 2016, but both suits were dropped when Trump permitted the pipeline.

“They already have those (lawsuits) drafted. Presumably, they could file the same lawsuit and the same NAFTA claim,” said James Coleman, an energy law professor at Southern Methodist University’s Dedman School of Law in Dallas.

Coleman said both cases would require some updating given the new circumstances and could have their merits, but the odds are against both TC Energy and the Alberta government because the U.S. has never lost a Chapter 11 case and paid damages.

“Even if it’s stronger than the average argument, no argument has ever been successful in winning compensation from the U.S. under NAFTA,” he said.

The language contained in the presidential permit issued by Trump, as well as the weakened provisions for seeking damages in the new USMCA trade agreement, will make it very challenging for Keystone XL proponents to challenge Biden’s decision, said Stephen Vaughn, a partner in the international trade team at King & Spalding LLP in Washington D.C., and previously general counsel for the U.S. Trade Representative.

The amended presidential permit Trump signed on July 29, 2020, specifically states Keystone’s “permit may be terminated, revoked, or amended at any time at the sole discretion of the President, with or without advice provided by any executive department or agency.”

Vaughn said it’s highly unlikely that either legal arguments or diplomatic overtures will change Biden’s position on Keystone XL.

“I think the view down here is that anything the president announces on day one, the president is pretty dug in on that,” Vaughn said. “I’m not aware of any presidents that did something on day one and then 90 days later think, ‘That was a mistake and I shouldn’t have done that.’”

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