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Pipeline Easements – A Fair Deal?


Posted on: October 19th, 2015
by David Ganje

As natural gas exploration and production has increased, so too has the need to overhaul and expand the natural gas transportation system. In this article, I discuss pipelines running over private land, and will leave the important issues of pipelines on state and federal land for another day.

The proposed Northeast Energy Direct (“NED”) and Constitution Pipelines will ultimately connect the gas shale fields of Pennsylvania to the Northeast. Building a pipeline means crossing privately-held land. In the case of the NED and Constitution Pipelines, scores of privately-owned parcels will have to be crossed along the pipelines route through New York State. In order to facilitate construction of the pipeline, the operators behind the NED and Constitution Pipelines will negotiate easements with the owners of these parcels.

The relationship between public utilities and negotiated easements is nothing new. Easements may be granted to private businesses, such as a public utility company, to cross a land parcel in order to provide common services such as sewer access or electricity. Natural gas pipeline easements present a different situation. Setting aside for the moment the issue of whether the pipelines are a good thing economically and environmentally for the state, affected landowners should tread carefully.

Unlike a public utility easement, a natural gas pipeline moves product for profit across land rather than providing a direct benefit to the land. At peak capacity, millions of dollars worth of natural gas will be moving through these pipelines every day. Are affected landowners receiving fair compensation?
Traditionally in these situations, landowners receive “market value” of the land affected by an easement, which often includes money for reduction in agriculture output or other productive use of the land.
While this system makes sense under the common public utility easement paradigm, how does this process apply when the landowner’s property is the “transportation vehicle” for a commodity? How does one calculate “fair market value” when millions of dollars worth of product are flowing across privately-held land? Is a one time payment for an easement fair compensation?
Kinder-Morgan, the Texas-based company behind the NED Pipeline states that “Our goal, our practice and our overwhelming experience is to arrive at mutually beneficial terms and conditions with landowners.” However, what is to prevent a landowner from refusing to take the deal presented to them? The developer goes on to explain that, “[W]e always view eminent domain as a last resort only to be used if extensive consultation and negotiations with an individual landowner is unsuccessful.”

The term eminent domain should raise a red flag with any landowner along a pipeline’s proposed route. Eminent domain means “forced taking” though litigation. Under the doctrine of eminent domain, private property may be seized so long as the seizure is for a public purpose, and fair compensation is provided.

The concept of “public purpose” is liberally construed under the law. So, a seizure of property for a pipeline could be for a public purpose even when the direct benefactor is a private company. “Fair compensation” typically means that the taking party must provide market rate for the seized or affected land. In such cases, the focus is on production loss to the landowner rather than benefit provided to the operator.

The stage has already been set to allow for eminent domain seizures. Under existing federal law, the Federal Energy Regulatory Commission (“FERC”) must first approve the project. As part of this process, pipeline operators are required to apply to and receive from the FERC a certificate under the Federal Natural Gas Act. Part of the certificate application process requires the pipeline operator to show that their project is a “public convenience and necessity.” Should FERC find that such a showing has been made (which it almost always does), then case precedent will allow eminent domain proceedings to commence. So, if the easements are coming, for what terms should New York property owners be on the lookout?

When landowners are approached about an easement they are presented with a standard agreement. These agreements will not refer to any individualized needs or considerations. But they do contain many important legal terms.

Some examples of common terminology:

-“Temporary periods” are often mentioned. How long is temporary?

-Many agreements give an operator the right to conduct several activities (reconstructing, modifying etc.) at any time. However, the Landowner does not retain the right to renegotiate the type of access allowed. These activities could cause future disturbances to the Landowner’s use and enjoyment of their land. Is the landowner left without any recourse?

-Some agreements allow for the installation of “any appurtenant facilities.” What are these appurtenant facilities? Are they going to impact the Landowner’s use and enjoyment of the land?

While Landowners may feel pressure to sign, that does not mean that they must be left with a bad deal. Any proposed agreement should be reviewed with the help of experienced advisors. A landowner should always carefully consider the circumstances of his land and, importantly the future of his land.


 

State Senator Jeff Monroe has publicly criticized my article on the fairness of easement payments to landowners. Public discussion of public issues is a duty for all of us. It is not a privilege. A discussion of pipelines as a commodity transportation vehicle is the first premise of the argument in my article on pipeline easement payments. From this I ask the question of fairness-of-payment to landowners whose lands are used to transport a business commodity. My argument of fairness is fair game for criticism but I see nothing in Senator Monroe’s critique of my article going to the heart of my point: what is a fair price for using one’s land to send a private company’s inventory to market. Railroads charge a handsome price for such transportation. And those prices change with economic conditions. Should not the same concept of participation in the economic system apply to an individual’s land which is to be used as the vehicle of transportation? The position stated by state Senator Monroe or his speech writers criticizes my concerns about the fairness of allowing a private company to use the land in an ongoing for-profit enterprise and calls it legal hooey. Forty-two states have enacted new legislation or passed ballot measures since 2006 concerning problems with eminent domain as a taking of private property. Compensation to landowners in eminent domain proceedings has been notoriously small in amount. Five states have recently enacted legislation increasing the compensation amount. These state efforts must all be a bunch of political and legal hooey according to the Senator.
-David Ganje