Supporters in Congress and the energy industry say Keystone would improve U.S. energy security and create thousands of jobs. They have pressured the White House to speed up federal review of the project, now in its fifth year.
For Canada's oil industry, the pipeline is considered key to accessing the high-value refining market on the U.S. Gulf Coast, where bitumen from the oil sands can compete against more expensive heavy oil from Venezuela and Mexico.
Approval of the pipeline is viewed as critical to a further expansion of oil sands production. With output now pressing against the capacity of Canada's existing export pipelines, Keystone XL could remove constraints that have made expensive rail shipments popular with producers.
The Nebraska commission's regulations lay out a detailed process for assessing impacts of the pipeline that includes at least one public hearing.
State law gives the commission seven months to issue a decision on an oil pipeline, though an extension to 12 months or more is possible under certain circumstances.
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Environmentalists, who were active in the commission's process for developing the oil pipeline regulations, welcomed the move to the panel that is generally viewed as apolitical.
"We think it's a much better process than the process that was thrown out," said Ken Winston, the Nebraska policy advocate for the Sierra Club, referring to the legislation, rejected by the court, that put the decision in the hands of the Republican governor.
A potential roadblock that TransCanada would face during the commission's process is that the agency will have to consider the views of local counties and governments surrounding the route, some of which oppose the pipeline's route over concerns about harm to fragile ecosystems in the state.
A spokeswoman for Governor Heineman directed inquiries about the commission to the state's attorney general office, which also declined to comment.
Some work done
While the agency would not look at the safety of the pipeline or the risk of leaks, it would have to assess "intrusion" of pipeline construction on natural resources and the economic and social impacts of the project.
Nebraska law also requires that state agencies such as the Department of Environmental Quality (DEQ) and the Department of Natural Resources provide input on pipeline applications, and it allows the commissioners to ask the agencies to submit reports related to proposed projects.
Since the DEQ already released an environmental review of the pipeline last year ahead of the governor's decision, the commission's assessment could wrap up in seven months, said Christine Tezak, an energy analyst with ClearView Energy Partners in Washington.
The DEQ report found the pipeline would avoid the sensitive Sand Hills region of the state and that construction of the project would have "minimal" environmental impacts in the state.
"That substantial dry run would seem to help a first-through-the-process project," Tezak said.
If the commission does wind up taking on the Keystone case, it would likely have to hire outside contractors to help carry out the review. The commission's natural gas department, which would handle the Keystone application, has two people on staff full time.
Nebraska State Senator Jim Smith said he was not concerned about the commission's ability to issue a decision on the project's route, although he prefers that the state prevail in its appeal of the overturned law.
"I don't think the Public Service Commission would have any problem or difficulty with the review," Smith said.
Smith, a Republican, sponsored the legislation that gave authority over Keystone to the governor and the state's environmental agency.
He said he introduced the bill because the commission was still getting its regulations for oil pipeline routes in place.
The U.S. State Department last month issued an environmental impact statement that found that approving Keystone XL would not unduly worsen climate change.