Nebraska landowners fighting TransCanada's Keystone XL pipeline won a victory in state court Wednesday with a Lincoln judge's finding that the state's pipeline siting law is unconstitutional.
Lancaster County District Judge Stephanie Stacy ruled that LB1161 -- passed by lawmakers in 2012 -- violates the Nebraska constitution by shifting control over routing decisions of oil pipelines from the Public Service Commission to the governor and Nebraska Department of Environmental Quality.
She said the decision to give TransCanada eminent domain powers -- meaning it can force people to sell land in the pipeline's path -- should have been made by the PSC.
In her order Wednesday, Stacy blocked the state from enforcing the law and taking any action on Gov. Dave Heineman's approval a year ago of the Keystone XL route.
"TransCanada's Keystone XL Pipeline has become a political lightning rod for both supporters and opponents of the pipeline, but the issues before this court have nothing to do with the merits of that pipeline," she wrote. "This case involves constitutionality of LB1161."
It likely won't be the last word on the matter.
Late in the day, the state Attorney General's Office filed notice to appeal the ruling to the Nebraska Supreme Court. Heineman said in a statement he supports the decision to appeal.
Omaha attorney Dave Domina, who represented landowners challenging the law, said the ruling sends Heineman and the Legislature back to the drawing board.
"TransCanada has no approved route in Nebraska," he said in a news release. "TransCanada is not authorized to condemn the property against Nebraska landowners. The pipeline project is at (a) standstill in this state."
But Omaha Congressman Lee Terry said he's confident the decision will be overturned, and even if it's not, it does not prevent President Barack Obama from approving construction of the pipeline.
“... let me be very clear -- this decision does not impede President Obama from doing the right thing after five years of delays and signing the permits to build the Keystone XL Pipeline.”
The Canadian company that wants to build the pipeline is waiting on a federal permit for the 1,179-mile northern leg of the pipeline.
In September, a crowd packed a Lincoln courtroom as Domina took jabs at the state law that handed the power of approval for its path through the state to the governor.
"The statute ought not survive," he argued at a bench trial that took only about half an hour because the case essentially boiled down to two issues.
* Whether plaintiffs Randy Thompson, Susan Luebbe and Susan Dunavan had standing to bring the suit against the state.
* Whether LB1161 was unconstitutional, as the plaintiffs alleged.
At the trial, Domina said his clients had standing as Nebraska residents and taxpayers, and he argued a laundry list of reasons why the law was unconstitutional.
On the other side, Assistant Nebraska Attorney General Kate Spohn argued plaintiffs had failed on both fronts.
As for standing, taxpayer money wasn't used as a result of LB1161, she said.
While the law appropriates $2 million from the Nebraska Department of Environmental Quality's cash fund to pay for an evaluation of any proposed pipeline, Spohn said, the pipeline carrier ultimately pays that. In the case of TransCanada, she said, the state was reimbursed.
But Stacy said she was not persuaded that because the state was reimbursed the taxpayers couldn't raise a legal challenge.
“While private reimbursement of public expenditures may be good fiscal policy, it should not be used as a legislative tool to insulate allegedly unconstitutional laws from taxpayer challenge, particularly when the appropriation of significant public funds is necessary to implement the law,” she said.
Spohn also argued plaintiffs failed to prove the law was unconstitutional on its face because LB1161 did not completely take away the PSC's jurisdiction but created a sort of shared jurisdiction by authorizing an alternate process.
The judge shot down other challenges to the law but concluded that it did take the power to regulate oil pipelines from the PSC and give it to the NDEQ and the governor.
"In arguing this issue, both the plaintiffs and the defendants mischaracterize, to some extent, the practical effect of LB1161," Stacy wrote.
She said the law, as it's written, gives pipeline carriers the choice of seeking route approval through the PSC or through NDEQ and governor. That clearly restricts the PSC's power over carriers who opt to go around it, Stacy said.
In other words, if the governor approves the route, the PSC permanently loses its decision-making authority over siting it.
The commission was created in 1885 to regulate railroads and prevent political favors.
Stacy's decision suggests TransCanada will have to restart the siting process, this time going through the PSC.
In response to Wednesday's ruling, Domina said the case wasn't a commentary on the pipeline itself.
"That subject belongs to the President of the United States exclusively.
"This ruling means that, in Nebraska, the Governor's office has no role to play, and all state law decisions must be made by the Public Service Commission."
Reach Lori Pilger at 402-473-7237 or email@example.com or follow her on Twitter at LJSpilger. Algis J. Laukaitis contributed to this story.