Musings: After Hiatus, Keystone XL Pipeline Battle Resumed Friday

Hess To Form MLP For North Dakota Oil, Gas Transport Assets
In light of the number of high State Department proponents of Keystone who have departed this year, G. Allen Brooks examines the issues which could change the dynamics of the approval process.

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It does not necessarily reflect the views of Rigzone.

In the chambers of the Nebraska Supreme Court in Omaha, a hearing was held Friday about the decision by Lancaster County District Judge Stephanie F. Stacy claiming that the law under which the state’s governor had approved the route of the Keystone XL pipeline was unconstitutional. The judge, in a case brought by three landowners, decided that LB1161, the law passed by the state’s legislature at the end of its session in 2011 that shifted the approval of the pipeline route from the state’s Public Service Commission (PSC) to the governor, was unconstitutional, and as such the judge instituted a permanent ban against Governor Dave Heineman (Rep.) or any other defendant in the case “from taking any action on the governor’s January 22, 2013 approval of the Keystone XL Pipeline route.” The surprise ruling that was handed down on February 19th of this year was immediately appealed by the governor and has now advanced to the Supreme Court.

The issues in dispute involve the siting of a pipeline, in this case the Keystone XL pipeline, when the state did not have a specific siting law for a non-common carrier pipeline, and the issue of who should approve a non-common carrier pipeline. At the heart of the case is the issue of whether the Keystone XL pipeline, traveling for something over 200 miles through the state of Nebraska but neither accepts or delivers product within the state, is a common carrier pipeline that is regulated by the PSC. The judge ruled that Keystone was a common carrier and should be regulated as such, meaning that the approval of the pipeline route rests with the state’s PSC. The governor’s lawyers argued that Keystone was not a common carrier and that the route could be approved in other ways outside of the PSC’s authority. The purpose of the newly enacted law was to establish another way that non-common carrier pipelines could be approved, including Keystone XL. The judge also determined that this law as written specifically for TransCanada (TRP-NYSE), another questionable action. We don’t know whether the issue of the standing of the landowners bringing the suit, which was raised by TransCanada but ignored by the district judge, will be explored in this hearing. The Keystone XL pipeline route did not cross or even touch the land of any of the three landowners who brought the suit.

As a result of the court ruling, the Obama administration determined that the legal uncertainty over the pipeline’s route required the President to defer any ruling on the pipeline’s application for a permit to build the interconnector segment crossing the Canadian/U.S. border. It was fairly quickly determined that the Nebraska Supreme Court would not deliver its verdict on the appeal until after the November mid-term elections. It is still uncertain when the ruling might be issued – any time between mid-November and the spring of 2015 have been offered up as likely decision points. If the court upholds the county judge’s decision, then TransCanada, the sponsor of Keystone, would be forced to restart its permit application process in Nebraska that could setback the federal government approval into 2016 or possibly 2017. However, should the court overturn the lower court ruling then it is likely TransCanada, along with its political and union supporters, would begin an active lobbying effort to persuade President Barack Obama to approve the pipeline permit. That effort, however, could be derailed by events and personnel changes at the Department of State during the past eight months.

One of the first events was the release in late February of the investigation by the State Department’s Inspector General into the selection process of the consultant who conducted and wrote the Environmental Impact Statement (EIS) stating that the Keystone XL pipeline would not contribute to increased carbon emissions as those Canadian oil sands would be developed with or without the pipeline. This eliminated one of President Obama’s critical tests for fossil fuel projects that they do not contribute to increased emissions as a result of their operation. President Obama set forth that test in his Earth Day speech last year.

As the IG report concluded: “Specifically, OIG's [Office of Inspector General] review found the following: (i) ERM [the consultant] had fully disclosed the prior work histories of its team members as part of its proposal; (ii) L/OES [Legal Advisor/Oceans, Environment and Science] attorneys had reviewed and researched the nature of the prior work and had discussed the prior work with ERM in the pre-selection interview; (iii) L/OES attorneys had determined that the prior TransCanada work occurred before the staff began work at ERM and that none of the prior work had involved Keystone XL; (iv) the Department's prescribed conflict of interest guidance provides four factual scenarios that may create impairments to objectivity; (v) the employees' prior work histories did not involve any of those four scenarios; (vi) this prior work had not impaired ERM's objectivity; (vii) the totality of information provided by ERM to the Department was not misleading; and (viii) the Department's conflict of interest guidance is consistent with pertinent regulations and case law.” While granting a clean bill of health to the State Department’s consultant selection process, the IG did say that the department "did not fully document its process," which it suggested included the details on how officials weighed potential conflicts of interest at ERM before selecting it. Do you sense this might be an area an environmental lawsuit might want to explore?

As expected, the environmental movement was outraged, calling the IG report a “whitewash” and calling for civil protests if a more “serious” investigation into the conflict was not undertaken. Leading politicians in the climate change community requested an “unbiased” investigation into the IG’s report and the conflict from the General Accountability Office. A review of the GAO’s web site listing investigations doesn’t show any report having been issued yet. That search was undertaken after a Google search failed to uncover any stories about a GAO report.

So as everyone awaits the Nebraska Supreme Court’s decision, it is also instructive to note that since January a number of key State Department officials involved in the Keystone XL permit approval process have left the department. Included in those departures was Keith Benes, an advisor to the department who fielded industry and environmentalists’ concerns. Interestingly, Mr. Benes was a long-time employee of a Washington, D.C. law firm that performed work for TransCanada. Carlos Pascual, State Department Special Envoy and Coordinator for International Energy Affairs, Kerri-Ann Jones, U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs, and Genevieve Walker, NEPA [National Environmental Policy Act] Coordinator have all left the State Department. Without these people, some of whom were likely proponents of Keystone XL, will any pushback or a legal attack on the EIS have greater success than efforts in the past when these people were there?

Depending on whether the light at the end of the Keystone XL pipeline approval tunnel is either a train or daylight will only mark the next stage of the environmental battle. We still have the possibility that Secretary of State John Kerry, a long-time environmentalist, might decide to overturn the judgment of his predecessor who stood for Keystone XL. There certainly will be an avalanche of legal challenges to an approval of the permit on multiple grounds. Some of the challenges are determined to push up the cost of the project and delay its timing for TransCanada. Lastly, we still have no idea what President Obama will decide. Grasping for a legacy in 2015 and 2016, the President might determine that the permit is worthy of denying in order to boost his standing with his loyal Democratic environmental supporters. That’s the scenario we are leaning toward.


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