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October 22, 2013 Articles

The Keystone XL Pipeline Faces a New Challenge

A lawsuit pending in Lincoln, Nebraska, could force TransCanada to postpone pipeline construction even further.

By Courtney Scobie

The controversial Keystone XL Pipeline is still in limbo. TransCanada, the company building the pipeline, announced in a recent Securities and Exchange Commission filing that it did not expect to receive presidential approval for the northern leg of the pipeline in 2013. The company has nearly completed construction of the southern leg of the pipeline, which will run from Cushing, Oklahoma, to refineries along the Texas Gulf Coast. However, construction on the northern leg of the pipeline, which would carry crude oil from Hardisty, Alberta, to Steele City, Nebraska, has yet to begin. The State Department and the Obama administration have previously rejected approval of the pipeline, saying the pipeline route required further study and that its then-proposed route could pose environmental problems. Now a lawsuit pending in Lincoln, Nebraska, could force TransCanada to postpone pipeline construction even further.

Three Nebraska landowners, led by retired rancher Randy Thompson, have sued the governor, the director of the Nebraska Department of Environmental Quality, and the state treasurer, seeking a declaratory judgment that a law granting the governor the power of eminent domain for pipeline permits violates the Nebraska constitution. See Second Amended Complaint for Declaratory Judgment at 1–3, Thompson, et al. v. Heineman, No. CI 12-2060 (Lancaster Cty. Dist. Ct. Mar. 18, 2013). In 2011, Nebraska enacted the Major Oil Pipeline Siting Act, which granted Nebraska’s Public Service Commission (PSC) the power to approve the routing of pipelines through Nebraska. Shortly after the law went into effect, though, the Nebraska legislature held a special session and subsequently passed LB1161, which transferred this power to the governor and the Department of Environmental Quality. The plaintiffs claim that the law essentially gave pipeline companies subject to the law (in this case, TransCanada) the power of eminent domain once the governor approved a route.

The plaintiffs argue that LB1161 is unconstitutional for a number of reasons. They claim the Nebraska constitution grants the PSC the power to regulate common carriers, even in the absence of legislation. They argue that the legislature, not the governor, can designate who may exercise the power of eminent domain. They also argue that the law violates the doctrine of separation of powers by permitting action to occur without judicial review and without notice to affected parties. Finally, the plaintiffs claim that the law unlawfully allocates the Department of Environmental Quality funding to implement the law even though the law is unconstitutional. The plaintiffs are seeking both a declaratory judgment declaring LB1161 unconstitutional and an injunction preventing enforcement of it. See Second Amended Complaint for Declaratory Judgment at 7–12, Thompson, et al. v. Heineman, No. CI 12-2060 (Lancaster Cty. Dist. Ct. Mar. 18, 2013).

The court held an injunction hearing on September 27, 2013, with attorneys for the plaintiffs and the state of Nebraska presenting their cases. Because the case only presents questions of law, there were only oral arguments by counsel. Stephanie Stacy, the judge presiding over the case, previously refused to dismiss the case because of the plaintiffs’ claims that the state has spent money illegally. Kate Spohn, the assistant attorney general representing the Nebraska officials, said that under the plain language of the statute, no public funds had been used because the pipeline carrier ultimately paid for the evaluation of any proposed pipeline. Spohn said evidence showed that in the one case where the law was used, the state had been reimbursed. She did not name TransCanada as the party reimbursing the state.

David Domina, the attorney for the plaintiffs, noted that this was the eleventh time the state of Nebraska had taken this position to argue that a plaintiff did not have standing and that such a position had failed the previous 10 times. He said the plaintiffs had standing as citizens and taxpayers of Nebraska. He also argued that the law provides no clearly defined standards for how the governor is to decide whose pipelines are approved and that the law was passed specifically to benefit a “single non-resident of the state,” TransCanada. Indeed, critics of LB1161 have charged that TransCanada more or less wrote the law itself.

Nebraska has always been at the center of the controversy over the northern leg of the Keystone XL pipeline, even before LB1161 and the Thompson lawsuit. Nebraska sits on top of the Ogallala Aquifer, which is a major source of drinking water for the Midwest and supports much of the agriculture in the Great Plains. Critics of the pipeline complain that a major leak from the pipeline could have a devastating impact on the region. Because of the concerns about the Ogallala Aquifer, TransCanada has proposed eight different routes for the leg of the pipeline running through Nebraska. The current proposed route of the pipeline avoids the Sand Hills region, a particularly sensitive area. The three plaintiffs in theThompson lawsuit each own land that at one time or another was situated along the pipeline’s route, but now, only plaintiff Susan Dunavan of York County has land on the current proposed route of the pipeline.

If the plaintiffs prevail in their lawsuit, then TransCanada would need to seek approval from the state of Nebraska for the third time, causing another delay. Judge Stacy did not indicate when she would issue a decision. After the hearing, a TransCanada representative said he would not speculate as to what the company would do if the judge overturns the law, and reiterated that Governor Heineman’s approval of the pipeline still stands. Brian Jorde, one of the attorneys representing the plaintiffs, said he anticipated one side or the other would appeal any decision by Judge Stacy, which would still result in a delay in pipeline construction.

Keywords: energy litigation, Keystone XL Pipeline, TransCanada, Nebraska, Major Oil Pipeline Siting Act, Public Service Commission, LB1161

Courtney Scobie is an associate with Ajamie LLP in Houston, Texas.

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