A Nebraska judge’s decision throwing out the Keystone XL pipeline route in the state may push President Barack Obama’s final decision on the contested project until after the midterm congressional elections.

Judge Stephanie Stacy in Lincoln yesterday invalidated legislation that let Republican Governor Dave Heineman approve the route and bypass the state Public Service Commission. TransCanada Corp. (TRP)will need commission approval, a process that by state law can take seven months. Nebraska Attorney General Jon Bruning has appealed the ruling, Heineman said yesterday.

The judge’s decision gives Obama a reason to delay a politically sensitive decision that could roil Democratic plans to keep control of the Senate.

“This gives the U.S. State Department and Obama an out,” said Bob Schulz, a University of Calgary business professor who has studied the project. “Why would they decide if they don’t have to decide? I think he’s going to push it back another year.”

Putting off a decision lets Obama avoid angering voters in energy-rich states if he decides to back environmentalists and reject the project. Former hedge-fund manager Tom Steyer’s anti-Keystone NextGen Climate Action group may spend $100 million this year backing candidates critical of the pipeline.

“This means that if you are sitting in a TransCanada boardroom, you have a lot of variables out there, including the fact that you don’t have an approved pathway through a critical state,” Chris Lehane, a political aide with Steyer’s group, said today. “Even in a state likeNebraska, the politics of this are evolving.”

Democrats seeking re-election in Republican states, such as Mary Landrieu of Louisiana and Mark Begich of Alaska, want Obama to approve Keystone.

Environmental groups say the $5.4 billion project will worsen climate change while labor unions and Republicans in Congress say building and operating the pipeline from western Canada to the U.S. refineries on the Gulf Coast will create jobs and expand the U.S. economy.

The State Department, which is reviewing Keystone because it crosses an international border, is in the process of determining whether the project is in the national interest. Obama has said he will make the final decision. A State Department official who requested anonymity said the agency had no comment.

It’s the second time questions over the Nebraska route have delayed a decision. Late in 2011, the State Department said it would wait to study an alternative route after state residents and Heineman said Keystone’s original path crossed an aquifer and was a threat to drinking-water supplies.

Obama rejected the original route in January 2012, citing concerns in Nebraska. The state legislature and Heineman then approved the revised course that is under review by the U.S. State Department.

“In short, ‘Keystone Standard Time’ seems poised to drag on a little longer, and thanks to yesterday’s ruling in Nebraska, it could potentially stretch beyond” the mid-term elections, Christine Tezak, an analyst with ClearView Energy Partners, LLC, a financial research group in Washington, said in a research note.

Canadian officials including Prime Minister Stephen Harper have lobbied Obama to approve Keystone, saying it will increase North American energy security. Harper has called the project a “no brainer” and criticized Obama for “punting” the decision on the pipeline.

Last night, after a meeting in Toluca, Mexico, with Harper and Mexican President Enrique Pena Nieto, Obama said he wouldn’t accelerate the U.S. review.

“Keystone will proceed along the path that’s already been set forth,” Obama said at a news conference. “I know it’s been extensive and at times, I’m sure, Stephen feels, a little too laborious.”

Representative Lee Terry, a Nebraska Republican and sponsor of legislation aimed at forcing Obama to approve Keystone, faulted the judge’s ruling.

“This is a terrible decision and if upheld would lead to increased dependence on foreign sources of oil,” Terry said in a statement. “However, 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.”

Environmentalists said the ruling would probably slow Obama’s final decision on the pipeline.

“The State Department analyzed a certain route in Nebraska and a judge has now thrown that route out,” said Jim Murphy, an attorney with the National Wildlife Federation, which opposes the pipeline. “I would think that a path to approval is very difficult.”

Anthony Swift, an international attorney for the Natural Resources Defense Council, said a review by the state public service commission would probably be “much more rigorous” than the process followed by the governor.

“I wouldn’t think it’s a sure bet by any means that the PSC will land on the same route,” Swift said in an e-mail.

In her decision in a case brought by three landowners, Stacy said legislation that stripped the commission of its power over pipeline siting is “unconstitutional and void.”

“Because the governor’s actions of Jan. 22, 2013, in approving the Keystone XL Pipeline route were predicated on an unconstitutional statute, the court also finds the governor’s actions in that regard must be declared null and void,” she said.

Under its regulations, the five-member Nebraska Public Service Commission has seven months from the filing of an application to approve or reject oil or natural gas projects.

Stacy ruled in a case pressed by three Nebraska property owners who sued to block the proposed path. Stacy heard arguments on Sept. 27. Her decision prohibits the governor or the state’s Department of Environmental Quality from taking any further action on the pipeline.

Supporters of the project said they remained hopeful that the judge’s decision wouldn’t cause much delay.

“Because the state of Nebraska made a thorough review of the alternative route, we would expect the Nebraska Public Service Commission to make the same decision as the governor in approving the new route and to do so in a timely manner,” Senator John Hoeven, a North Dakota Republican, said in a statement.

The project cleared a key hurdle on Jan. 31 when a State Department study found its impact on the climate would be minimal. Obama has said the project wouldn’t be in the national interest if it significantly worsens climate change.

The national interest determination will review issues other than environmental risks, including its importance to the U.S.-Canada relationship, the economic benefits it offers to local communities and how it would improve U.S. energy security. Eight federal agencies have 90 days to give their views to the State Department.

The case is Thompson v. Heineman, CI 12-2060, Lancaster County, Nebraska, District Court (Lincoln).

Source: Bloomberg