Nebraska mulls plan to set up Keystone 'exclusionary zones'

LINCOLN, Neb (Reuters) - Nebraska lawmakers on Thursday offered two more proposals to regulate the Keystone XL oil pipeline, one to force a change in the route and another to set up a $500 million indemnity fund.

The proposals completed the filing of draft laws during a special session of the state legislature, bringing to five the number of plans that will be debated, lawmakers said.

Republican Governor Dave Heineman called the special session amid growing opposition to routing the pipeline through Nebraska's ecologically-sensitive Sand Hills and over the Ogallala aquifer, which provides water to Plains states.

The $7 billion TransCanada pipeline proposal would bring crude from the oilsands of Canada to Texas refineries. The U.S. State Department has the ultimate authority to approve or reject the proposal and hopes to rule this year. Some legal experts believe Nebraska does not have the authority to regulate the route.

The five Nebraska proposals are:

** Give the power to approve any oil pipelines to the state Public Service Commission based on an extensive list of criteria and approval from local governments. Under the bill, an approved application would be required prior to a company being granted eminent domain rights to buy the land.

** Give the power to approve pipelines solely to the governor, based on findings and advice from a panel of experts including representatives of the state Department of Environmental Quality, Department of Natural Resources, Game and Parks Commission and Public Service Commission.

** Give the power to approve any oil pipeline to the state legislature.

** Allow the pipeline to go ahead but require TransCanada to route the line away from the environmentally-sensitive Sand Hills region and away from the Ogallala Aquifer.

** Create a $500 million indemnity fund that would hold TransCanada responsible for any oil spills, and damage to roads, land and infrastructure during construction. TransCanada has offered a fund of $100 million.

"What I do expect is maybe that in the end what we will get before us on the floor (of the legislature) will be parts from all of these bills," said Sen. Bill Avery, who introduced the indemnity proposal.

The proposal to force TransCanada to move the pipeline modeled after a law in North Dakota that designates "exclusionary zones" where pipelines cannot be built, said Senator Ken Haar, who introduced the plan. He said this worked for the first part of the Keystone project which runs through eastern Nebraska and not the Sand Hills.

"This bill says you can build your pipeline, just not in the Sand Hills and not in areas where groundwater is near the surface," Haar said.

The legislature will meet in proforma session on Friday but is not expected to advance the proposals. Public hearings will begin on Monday with hundreds of people clamoring for a chance to testify, sources said.

Final action is not expected until later in the month.

(This version corrects first and last names of Senator Ken Haar in fourth and third paragraphs from bottom)

(Editing by Greg McCune)