Officials from several Kansas counties informally agreed Wednesday that they'll challenge a multimillion-dollar tax exemption the legislature handed to a Canadian pipeline company and might seek a new excise tax on the proposed pipeline's capacity.

At issue is a $1 billion pipeline project, dubbed Keystone, that will carry crude oil from Canada's tar sands to tank farms in Illinois, Oklahoma and the Gulf. Two legs of the pipeline will go through Kansas -- one extends 96 miles across the northeast corner as it heads from Steele City, Neb., to Pakota, Ill. The other runs from Steele City to Cushing, Okla.

TransCanada Pipeline, a huge energy company whose pipeline revenues last year exceeded $4.6 billion, succeeded in convincing the Kansas legislature to offer tax exemptions for the 210-mile section that runs to Oklahoma.

No other state along the route has granted TransCanada tax exemptions. Indeed, at public meetings held in Iowa in 2005 the company estimated the pipeline would generate $6 to $8 million a year in new tax revenues.

The tax waiver, if it's granted, will cost Dickinson County at least $1 million in lost property tax revenue in the first year. The pipeline is to run through Washington, Clay, Dickinson, Marion, Butler and Cowley counties.

"I think our whole problem is with the Kansas state legislature," said Gene Helms, Washington County commissioner, at a meeting in the Dickinson County courthouse that was called to discuss local options. "(TransCanada) dealt with the state and the state gave away the farm."

During the hourlong meeting, which included representatives from the Kansas counties in the proposed route except Butler, a consensus emerged to mount a legal challenge to the exemption.

The legislation that created the pipeline exemption -- along with exemptions for oil refineries, coal gasification nitrogen fertilizer plants and cellulosic ethanol plants -- defines a qualifying pipeline as one "to which refineries ... in this state have access."

Jim Prescott, a spokesman for TransCanada, said this week that there will be no interconnects to the pipeline in Kansas. Rather, Kansas refineries will have access to the Keystone crude oil through existing pipelines between the refineries and Cushing, Okla.

The group expressed support for the suggestion that school districts and other affected taxing entities be enlisted to help mount a legal challenge.

One idea that had been raised earlier was to charge $1,500 for each road the pipeline crosses. Brad Homman, director of administration for Dickinson County, said the county counselor wasn't keen on that idea.

"He does not think we would win that one in court," Homman said. Dickinson County Counselor Doug Thompson was not at the meeting.

County officials said they are concerned that roads ripped up to accommodate the huge pipeline -- it will be 36 inches in diameter and will require a ditch that is 30 to 50 feet wide and 15 feet deep -- may not be restored to their original condition. In addition, the damage caused by the weight of trucks carrying the 80-foot-long pipe sections was also mentioned.

Pipes are expected to start arriving soon in Hanover, which is in Washington County; in Junction City; and in Florence.

Dickinson County Zoning Administrator Gina Bell said addressing flood plain issues will be difficult. Flood plain regulations require permits if the ground level in floodways is raised 1 foot or more; berms created by ditch excavation could be 20 feet high, she said, and will behave like levees.

"You have flooding issues if they come through in the spring," Bell said.

Homman said TransCanada has agreed to pay for an inspector, hired by the county in question, who would monitor the project.

Copyright (c) 2009, The Salina Journal, Kan. Distributed by McClatchy-Tribune Information Services.