The State Department, given a clean bill of health today by an inspector general's inquiry into its review of the Keystone XL pipeline, still plans to revamp its selection of third-party environmental contractors to project what one agency official called a "cleaner" image during interviews with the IG.

The 58-page IG report largely vindicates a Keystone XL review process that took brutal hits from Democrats and green groups as the Canada-to-U.S. oil link rose to become a top-tier energy issue on Capitol Hill. But despite the IG's finding of "no evidence" that pipeline sponsor TransCanada Corp. exerted undue pressure on the selection of contractor Cardno ENTRIX, State told its independent auditor that the politically fraught Keystone XL experience would prompt a reassessment.

One State official told the IG, according to its report, that "the Department is not considering changes to the process because there was influence, but because it understands how the appearance of the process has raised questions."

"The appearance of this ... needs to be cleaner," the anonymous State official told the IG.

Using a process developed by the Federal Energy Regulatory Commission -- the same independent entity directed to approve Keystone XL under a Republican bill set to come to the House floor next week -- TransCanada proposed three ranked options for a third-party contractor to review the pipeline and was responsible for paying Cardno ENTRIX, according to the IG report.

As is the case at FERC, State separately evaluated those ranked proposals and made its own decision to employ ENTRIX, the IG found. FERC officials told the auditor that the ability of private-sector applicants such as TransCanada to pay for their contractors, while it has the benefit of minimizing "cost to the taxpayer," did create "questions."

Among the options State is weighing for future project reviews under the National Environmental Policy Act (NEPA), the anonymous official told the IG, is an in-house review of contractor proposals "without input from" companies seeking a government permit.

Asked about the IG report today, State spokeswoman Victoria Nuland pointed to its multiple positive findings about her agency's handling of Keystone XL, including its response to Freedom of Information Act requests and its engagement of other agencies during the environmental review (Greenwire, Feb. 9).

"That said, the OIG does make some recommendations about how we can improve these processes in the future, and we're going to take all of those on board," she told reporters.

High volatility

While State is technically finished with a pipeline review that ended last month in a White House rejection of a permit for Keystone XL, the project's ongoing volatility makes the IG report a powerful tool for both sides of the debate. In addition to next week's House floor debate, Senate Republicans signaled today that their plan to fast-track the pipeline could come back on the agenda in the upper chamber during votes on transportation legislation (see related story).

Bill McKibben, the green activist whose group, 350.org, kicked off another round of protests against the XL line this week, hailed State's decision to change its review guidelines as an acknowledgment of stumbles in its initial look at the pipeline.

"We're very glad to know that if TransCanada or anyone else applies again, the State Department has agreed the same sort of procedures won't apply next time," he said in a statement. "This question -- at root, the future of the planet's climate -- is way too important for 'on the job training.'"

American Petroleum Institute President Jack Gerard, for his part, joined Republicans across the Capitol in touting the IG report as a nullification of one of conservationists' most vocal arguments against approval of Keystone XL.

"It's clear that another excuse not to build the pipeline has been removed, so we can only ask ourselves what's the excuse now for not approving Keystone?" Gerard said in a statement.

TransCanada CEO Russ Girling released a statement describing his company as "pleased" with the IG's conclusions and underscoring its intention to move ahead with the pipeline proposal no matter the outcome of the congressional clash. "Plans are already underway on a number of fronts to do our part to maintain the project's construction schedule," the company added in its statement. "TransCanada will re-file for a presidential permit and expects that a new filing can be processed in an expedited fashion due to the work that has already been completed."

The 1,700-mile pipeline would nearly double U.S. import capacity for Canadian oil sands crude if constructed, making Keystone XL a nonstarter for greens who view that emissions-intensive fuel as harmful to the climate but a major goal for industry groups that view it as an economic boon.