Senate Democrats' top negotiator on a long-term payroll tax-cut plan told E&E Daily yesterday that he has not ruled out using the bill as a vehicle to push the Keystone XL oil pipeline.

Asked if he considered the pipeline still on the table for high-profile talks on extending the White House-backed payroll tax relief, Finance Chairman Max Baucus (D-Mont.) -- a longtime supporter of the Canada-to-U.S. XL link -- said: "I've not taken it off." His remarks could present a political pickle for Democrats as the GOP weighs whether to insist on overriding President Obama's week-old rejection of the project as a condition for approving a new payroll tax measure.

Keystone XL appeared nowhere in Obama's State of the Union address yesterday, drawing howls of consternation from Republicans who made his denial of a permit for the $7 billion pipeline a central plank of their official response to the president (see related story).

But the Alberta-to-Texas pipeline, which would have nearly doubled U.S. import capacity of emissions-intensive Canadian oil sands crude had Obama approved it, is taking on a prominent role in the nascent payroll tax-cut talks and is set to spark a highly partisan tangle today in the House Energy and Commerce Committee.

The war of words began hours before the Energy and Commerce Committee hearing this morning, as a witness scheduled to testify today on behalf of the Nebraska Department of Environmental Quality (DEQ) was pulled from the schedule.

Rep. Lee Terry (R-Neb.) yesterday slammed the State Department, which led the years-long environmental review of the pipeline and formally recommended its rejection by Obama, for objecting to DEQ Director Mike Linder appearing on the same panel as Obama administration witnesses.

"I'm angry at the State Department for pushing him off" by objecting, Terry said, when House Democrats' departure for a long-scheduled retreat prevented the committee from forming a second panel of witnesses.

The Nebraskan, whose bill empowering the Federal Energy Regulatory Commission to approve Keystone XL is expected to clear the House this winter, said that State and Democratic lawmakers who objected to Linder's sharing a panel with the administration were going to "eliminate the one person" on the witness list who would take a proactively positive tack on the pipeline.

A State spokesperson last night dismissed the suggestion that its objection to Linder's testimony was driven by anything but longstanding Capitol Hill practices. "We asked the committee to adhere to their practice of having a separate panel for administration witnesses," the spokesperson said. "In response, the committee informed us that they had decided not to have the DEQ official appear."

The Nebraska DEQ is currently moving ahead with review of a potential new route for the project that would skirt the state's ecologically sensitive Sand Hills -- a move by pipeline sponsor TransCanada Corp. to assuage local concerns on both sides of the aisle about the XL line's environmental footprint. That state-level review, estimated to take up to nine months to complete, would have a green light under Terry's bill but is still awaiting State's approval of a memo that would govern cooperation between Nebraska and the federal government.

Terry said yesterday that Nebraska offici als had sent State the memo in question but that the department had yet to sign off.

Talks on a longer-term payroll tax-cut deal opened yesterday with Republican clamors to include Keystone XL, hotly touted for its economic and national-security benefits by the oil industry and business groups, in any final product. Senate Majority Leader Harry Reid (D-Nev.) -- a Baucus friend who aligns with greens bitterly opposed to the pipeline as a spur for more oil consumption -- signaled at the same time that he would frown on its attachment to a payroll tax bill (E&ENews PM, Jan. 24).