TransCanada Corp. (TRP)’s Keystone XL pipeline route through Nebraska was ruled illegal by a state court judge in a decision seen as setting back the project by as long as a year as U.S. officials consider approving it.
The ruling resets the pipeline approval process in Nebraska as the Obama administration studies the northern portion of the international project. President Barack Obama has been urged by some Democratic supporters to reject the project as too big a contributor to global warming while Republican leaders have pressured him to approve it and Canadian officials have criticized him for taking too long to decide.
“This gives the U.S. State Department and Obama an out,” said Bob Schulz, a University of Calgary business professor, who predicted there will be an appeal of the ruling. “Why would they decide if they don’t have to decide? I think he’s going to push it back another year.”
Judge Stephanie Stacy in Lincoln, the state’s capital, today struck down legislation that shifted the power to approve the pipeline route to Governor Dave Heineman, a Republican, from the state’s Public Service Commission. Legislation depriving the commission of that power violates the Nebraska Constitution, Stacy said, declaring the measure “unconstitutional and void.”
“Because the governor’s actions of Jan. 22, 2013, in approving the Keystone XL Pipeline route were predicated on an unconstitutional statute, the court also finds the governor’s actions in that regard must be declared null and void,” she said.
TransCanada, based in Calgary, is seeking to build the 830,000 barrel-a-day pipeline through the U.S. heartland, connecting oil sands in Alberta with refineries along the Gulf Coast of Texas and Louisiana. The 1,179-mile (1,897-kilometer) pipeline would run from Hardisty, Alberta, to Steele City, Nebraska. From there it would connect to an existing network.
Stacy’s ruling comes in a case pressed by three Nebraska property owners who sued to block the proposed path. Stacy heard arguments over the siting legislation on Sept. 27. Her decision prohibits the governor or the state’s Department of Environmental Quality from taking any further action on the pipeline project.
Heineman, whose term expires at the end of this year and is barred by law from seeking re-election, had referred calls about the ruling to the office of Nebraska Attorney General Jon Bruning.
“We’re reviewing the decision,” Bruning’s spokeswoman, Shannon Kingery, said in an e-mailed statement.
Heineman said in a statement later that Bruning has already told the court the state plans to appeal. “This is an important issue for the state of Nebraska,” the governor said.
Because the pipeline crosses an international boundary, it is subject to U.S. State Department review.
Canadian Prime Minister Stephen Harper has called Keystone XL a “no-brainer” for the U.S. and last month criticized Obama for “punting” the decision on the line. While the project remains on hold, Harper’s government has redoubled efforts to get new oil conduits built to Canada’s Atlantic and Pacific coasts, by making faster regulatory reviews law and increasing discussions with aboriginal groups along pipeline paths.
Obama met today in Toluca, Mexico, with Harper and Mexican President Enrique Pena Nieto. Obama gave no ground on speeding up the review of the Keystone XL after the meeting.
“Keystone will proceed along the path that’s already been set forth,” Obama said at a press conference after the meeting. He said he and Harper discussed “a shared interest in dealing with greenhouse gas emissions. This is something we have to deal with.”
Harper said he and Obama “had an exchange” on the Keystone XL project. “We’ll continue on that discussion,” he said.
Today’s court’s decision strikes down a 2012 law passed by the Nebraska legislature that expedited pipeline route review and created a procedure under which siting could be determined by Heineman and the state’s Department of Environmental Quality, rather than the Public Service Commission.
If Stacy’s decision survives appeal, the routing process will revert to the commission, which was granted oversight in 2011. That legislation was passed amid opposition by the governor and other leaders and ranchers to TransCanada’s original proposed route that would have taken the Keystone XL through the state’s environmentally sensitive Sand Hills region.
The commission never began a review of the pipeline because the legislation created a different process, said state Senator Annette Dubas, who sponsored the 2011 bill.
The 2012 law created special treatment for TransCanada’s proposal, Dubas said in a phone interview.
“I believed all along that the bill was unconstitutional and would run into problems,” she said.
The ruling effectively rescinds Heineman’s notification to the Obama administration that Nebraska legal procedures for approving the pipeline had been satisfied, said attorney David Domina, who represents the suing landowners.
“Now it is back to the drawing board for Governor Heineman and the Legislature,” Domina said in a statement.
Stacy said in her ruling that the case isn’t about the merits of the Keystone XL pipeline project.
“We are disappointed and disagree with the decision,” Shawn Howard, a TransCanada spokesman, said today in an e-mailed statement. “We will now analyze the judgment and decide what next steps may be taken.”
The company continues to believe in the project and the benefits it would confer to the U.S., including thousands of jobs and “a secure supply of crude oil from a trusted neighbor in Canada,” he said.
The Nebraska commission has seven months to approve or deny a pipeline route application, according to state documents that outline the commission’s regulations.
The commission doesn’t take into account safety concerns and is instructed to weigh the reputation of the applicant, how a company proposes to mitigate any potential environmental damage and any economic and social effects, according to the documents.
The Nebraska ruling is “another bump in the road for Keystone” and may have a “mildly negative” impact on TransCanada’s share price, Robert Kwan, an analyst at RBC Capital Markets, said in a research note.
“We would not be surprised if the administration used the events in Nebraska as a reason to delay making a decision as part of the presidential permit process,” Kwan said.
Jim Murphy, an attorney with the National Wildlife Federation, which opposes the pipeline, said in a phone interview he doesn’t believe Secretary of State John Kerry could approve a route that a judge threw out as improper.
“The State Department analyzed a certain route in Nebraska and a judge has now thrown that route out,” Murphy said. “I would think that a path to approval is very difficult.”
The landowners’ lawyer, Domina, predicted in an interview last month that the case would go to the state’s Supreme Court.
“The chances are 99.82 percent,” the attorney said then, adding it may take as long as 10 months for Nebraska’s top court to render a ruling. Domina last month declared himself a Democratic candidate for the U.S. Senate. The seat is currently held by Republican Mike Johanns, who has said he’s retiring.
TransCanada first applied to build Keystone XL in September 2008 to connect rising volumes of oil-sands crude with U.S. Gulf Coast refineries. Producers are counting on the project to help ease a transportation bottleneck and raise the price of Canada’s heavy crude, which averaged $24.50 a barrel lower than the main U.S. benchmark last year.
Oil is Canada’s most valuable export, with shipments worth about C$73 billion ($65.9 billion) in 2012, according to the national statistics agency. Almost all Canadian crude exports go to the U.S.
While the Nebraska route issue may delay Keystone XL, the effect on TransCanada from another hold-up on the pipeline isn’t as big as it would have been in 2008 because the company is focusing on other projects, said Juan Plessis, an analyst at Canaccord Genuity Corp. in Vancouver.
“Will the stock open lower tomorrow because of this? Probably not,” Plessis said. “Most investors are quite jaded by the delay. They’ve pretty much seen everything. It’s been five years since this was put forth to the U.S.”
For TransCanada, Keystone XL’s significance is being overshadowed by a much larger crude pipeline it now plans to build, the C$12-billion Energy East project that would carry oil-sands production to eastern Canadian refineries and a port on the nation’s Atlantic Coast for export as far as India.
The case is Thompson v. Heineman, CI 12-2060, Lancaster County, Nebraska, District Court (Lincoln).