On February 19, 2014, a Nebraska state court judge voided Governor Heineman’s January 22, 2013 approval of TransCanada Corp.’s proposed Keystone XL Pipeline route through Nebraska, ruling that the underlying statute is unconstitutional. Lancaster County District Court Judge Stephanie Stacy specifically ruled that LB 1161, which had been enacted in 2012 to facilitate designation of pipeline routes, divested authority from the Public Service Commission (“PSC”) over the routing decisions of oil pipelines and placed such authority in the Nebraska Department of Environmental Quality (“NDEQ”) and the Governor, in violation of article IV, § 20 of the Nebraska Constitution.

The State had sought to support the constitutionality of LB 1161 on two bases. The State first argued that the PSC’s authority under the Nebraska Constitution was not so broad as to regulate the placement of pipelines, but that it instead was limited to rates and terms of service. Judge Stacy held that this was a narrow reading of the Nebraska Constitution that had been rejected by other courts. The State further argued that LB 1161 was permissible because it merely presented an “alternative” to PSC authority by creating a mechanism under which either the PSC or the NDEQ/Governor could consider pipeline locations. Judge Stacy rejected this argument as well, holding that the transfer of any constitutional powers from the PSC could be placed only in the Legislature and not in the NDEQ/Governor.

In issuing her decision, Judge Stacy noted the national policy controversy surrounding the pipeline, and she was careful to clarify that her decision did not seek to invade the province of policy. The State has announced that it will appeal the decision, which appeal presumably will be heard on an expedited basis. It should be noted, however, that the plaintiff group challenged LB 1161 on seven grounds. Judge Stacy upheld LB 1161 on several of these grounds but did not reach decisions on others. Accordingly, it is likely that an appeal will involve an examination of each of these arguments. In the meantime, TransCanada could seek approval of the route from the PSC as a potential solution to mitigate delay.