Legal bounds of oil terminal lease called into question

Opponents of a proposal to build the Northwest’s largest oil-by-rail transfer terminal at the Port of Vancouver have packed public hearings and repeatedly pounded a message to port commissioners: cancel the lease with Tesoro Corp. and Savage Companies.

Now, Commission President Brian Wolfe, while not in favor of revoking the lease, wants a legal opinion about the port’s ability to abort the agreement. “I feel like we’re not being responsive to citizens who are showing up (and) asking us to cancel (the lease),” Wolfe said. “I feel like they deserve a response.”

It appears doubtful the port will develop such a report. Commissioners Jerry Oliver and Nancy Baker say they want to let the state-level review of the oil terminal take its course.

As things now stand, the port, citing exemptions under state law, has censored parts of the lease, a copy of which was obtained by The Columbian through a public disclosure request. The redacted material makes it difficult for the public to fully understand the lease agreement. Although the lease contains opt-out clauses, for example, some of the details of how they work aren’t entirely clear. Also censored are certain oil-handling targets the companies must hit to have a shot at building a second terminal or expanding their operation. Even email addresses and fax numbers for Tesoro and Savage are blacked out.

Some details are publicly known: For example, the lease involves 42 acres and is worth at least $45 million to the port over an initial 10 years. But some local officials say the port blacked out material to the point of making it difficult to thoroughly comprehend a document that goes to the heart of Tesoro-Savage’s proposed oil-terminal.

Documents obtained by The Columbian show that a Vancouver city attorney, who obtained a copy of the lease from the port, has raised questions about the port’s legal justification for censoring portions of the lease agreement. The lease and its exhibits “include a large number of redactions,” Bronson Potter, chief assistant city attorney, wrote in a Feb. 18 email to the port two weeks after he’d received and reviewed the pact.

The port had told Potter that some information could be withheld, in part, under the Uniform Trade Secrets Act, but Potter questioned that assertion. It’s “doubtful that any of the information redacted would qualify as being a ‘trade secret,’ ” he wrote. In a phone interview, Potter said he questioned the redactions because the city wants to truly grasp the terms underpinning the oil terminal deal. “It’s tough to understand a lease when some of the key terms are blacked out,” Potter said.

Censored details include the time frame within which the port expects Tesoro-Savage to begin construction and the amount of collateral the port is requiring the companies to put up to secure payment of rent.

While separate, the questions raised by Potter and Wolfe illustrate a larger point about the lease between the port and Tesoro-Savage: More than eight months after port commissioners took their first unanimous vote to approve it, debate over the lease (429 pages of none-too-easy reading) isn’t going away anytime soon.

In the months ahead, opponents are expected to continue to try to capsize the oil-facility contract, including pressuring port commissioners during public hearings and further pressing their case in court. They face a port confident in the legality of its lease and determined to see the permitting process through to the end.

Theresa Wagner, communications manager for the port, said that under state law the port was allowed to redact certain information in the lease that, if made public, would harm the port and Tesoro-Savage’s competitiveness in the marketplace.

She said the port structured the lease so that if the companies don’t meet certain conditions, the port may opt out of the contract. A primary condition requires Tesoro-Savage to obtain the necessary state and federal permits. If they don’t, the port would have grounds to terminate the lease. The port also crafted the lease to require the companies to meet the highest possible safety standards, Wagner said. For example, the document allows the port to incorporate any updated or additional safety standards that regulators may impose in the months ahead. On Aug. 29, Tesoro Corp. and Savage Companies submitted their permit application to the state Energy Facility Site Evaluation Council. The companies want to construct and operate a $110 million oil-by-rail facility capable of handling as much as 380,000 barrels of crude per day. The companies say the oil would be hauled in from North Dakota’s Bakken shale formation for eventual conversion into transportation fuels at U.S. refineries.

The agency is expected to take more than a year before making a recommendation to Gov. Jay Inslee. The governor has the final say over the permit application and, by extension, control of the fate of the lease.

Depending on how that review goes, the lease could fizzle or move forward.

‘A full menu’

Tesoro and Savage say the benefits of their project include at least 250 temporary construction jobs, 120 permanent jobs and a boost to local and state tax revenues. The port says revenue from the lease — in addition to rail car, wharfage and other fees (unknown because they’re redacted) — will generate additional economic development benefits, including the ability to re-invest millions in further industrial development and to create hundreds of more jobs. In urging the port to quash the lease, opponents say the oil terminal is too risky and costly for environmental, safety and economic reasons. They point to Tesoro’s tarnished safety record, including the 2010 explosion at a Tesoro refinery that killed seven people. They present many other concerns, including potential oil spills on land and in the Columbia River, explosive and deadly train derailments, detrimental impacts to a $1.3 billion Vancouver waterfront redevelopment project, the effects of new toxic air emissions on residents who live near the port, and global climate change.

Wolfe said those who’ve urged the port commission to cancel the lease deserve answers. He said he would expect the port’s legal counsel to provide “a full menu of what the options are and the alternatives for what happens, up or down on each option.” However, he worries that such a move would have “a chilling effect on our overall marketing effort,” he said. “Who would want to sign another lease with the Port of Vancouver if we’re going to break this one?”

Oliver said he opposes asking for such a legal opinion. If the port were to “unilaterally abrogate or break the lease,” he said, the port would “likely find itself liable for damages.” Baker said: “I’m not in favor of thinking about canceling the contract, because that’s not something the Port of Vancouver does.”

Wolfe first expressed interest in getting an analysis of the port’s capacity to rescind the lease on March 25. Since then, no official request for such an analysis has been made, Wagner said. And it’s not likely to happen. “As long as both (the port and Tesoro-Savage) are compliant with the lease as it stands, it would be inappropriate to look at breaking the lease,” she said.

‘Conditions precedent’

The oil-terminal lease attracted gobs of questions and criticisms before July 23, when port commissioners took their first unanimous vote to approve the agreement. As a corrective move and in response to alleged violations of state public meetings law, commissioners held a second public hearing on Oct. 22. Again, they voted unanimously to approve the lease.

But the port still landed in court. And the legal battle over its lease isn’t over.

In January, a Clark County judge ruled partly in favor of the port in a lawsuit that claimed the port violated state environmental and open public meetings laws in approving the lease. Superior Court Judge David Gregerson dismissed a claim by three environmental groups that the port violated the state Environmental Policy Act by approving the lease before an environmental impact statement was issued.

He said, in part, that the law governing EFSEC, which will issue an environmental impact statement on the proposed oil terminal, exempts the port from SEPA. Conversely, Gregerson allowed Columbia Riverkeeper, Sierra Club and Northwest Environmental Defense Center to pursue their allegation that port commissioners held an illegal executive session on July 22 to discuss the lease in private.

But the environmental groups aren’t finished fighting the lease under the state’s environmental law. On Friday, the groups filed a notice of appeal. As those groups prepare to wage another court battle, critics of the oil terminal keep pressing the port to void the lease. Some details of how the port and Tesoro-Savage could part ways are publicly known. When he ruled partially against the environmental groups in January, Gregerson said the lease “contains enough outs” so that the port could ultimately walk away from the oil terminal.

At least one of those “outs” is the biggest one: If Tesoro-Savage fails to obtain the necessary permits, the port would be able to say goodbye. The lease contains additional opt-out clauses, or “conditions precedent” — contractual language that says there’s no deal until the parties fulfill certain obligations.

For example, the lease says that if the companies don’t launch construction within a certain time frame, the port may dissolve the lease. But that time frame isn’t publicly known, because it was redacted. It’s also a time frame the port could renegotiate, said Wagner, the port’s spokeswoman, depending on certain circumstances, including a permit process that takes longer than expected. Major changes like that would go back to the port commission for approval.

Another part of the lease says the port and the companies must agree on a safety and operations plan before Tesoro and Savage may operate the oil terminal. Under that provision, the companies, if they win the permits, could build the facility but wouldn’t be able to flip a switch until they agreed with the port on the safety plan.

A disagreement, at that point, doesn’t seem likely. And, at that stage in process, any disagreement between the port and Tesoro-Savage could be negotiated, Wagner said.

Another partly redacted section of the lease gives Tesoro-Savage first rights on leasing additional property to expand or build another oil-by-rail project if certain conditions are met. If the average amount of oil moved by the first facility exceeds certain barrels-per-day targets, for example, then the companies could seek another round of permits to expand.

The oil volume targets aren’t known, however, because they’re blacked out in the lease.

With few exceptions, the United States currently maintains a ban on exporting raw domestic crude oil. Tesoro and Savage say they plan to haul crude to the port by train from North Dakota’s Bakken and then move it by water to U.S. refineries.

However, Wagner confirmed, the lease does not prohibit the companies from exporting Canadian crude.

As to the lease redactions, Wagner said they’re not necessarily set in stone. That’s because, through public presentations and conversations, certain information in the lease has come to light. And the port continues to receive requests for copies of the much-discussed document, she said. As a result, when the lease is publicly released in the future, it may contain fewer mysteries. But it may not get at the questions Wolfe wants answered: the costs and consequences for the port and the community of revoking the lease.