Pipelines and Power Lines

If thou art a crude pipeline, thou art a common carrier.

WHETHER IT'S PIPELINES OR POWER LINES BEING AIMED AT a route across your land, be engaged in the routing process early, get professional legal help with the negotiations and consider some non-monetary options in the easement agreement. Those were just 3 of several points made by attorneys Zach Brady and Tom Zabel at the Private Property Rights Town Hall, part of the 2014 Cattle Raisers Convention in April.

In the June issue, we presented the first half of the Town Hall discussion in the article "Everyone's Drought." This month, we present part of the discussion on eminent domain.

Attorneys Zach Brady and Tom Zabel joined moderator Jim Malewitz, energy reporter for the Texas Tribune, on the stage for the discussion. The Town Hall was sponsored by Hargrove Ranch Insurance.

"Our country's energy boom has spurred a need for more pipelines and power transmission lines," Malewitz said. "They need to go somewhere and that reality has prompted negotiations and certainly conflicts between landowners and pipeline and transmission company operators," he began, introducing Brady and Zabel.

Brady is a founding partner of Brady and Hamilton LLP, Lubbock. He specializes in agricultural law with a focus on real property litigation including eminent domain and water rights. Zabel, partner with Zabel Freemen, Houston, is an attorney and petroleum engineer and has more than 26 years of experience. His clients include major and independent oil and gas companies, service companies, pipeline companies and individuals.

Malewitz asked the attorneys how landowner rights might differ based on the item being routed, a pipeline or a power line.

Brady began by saying the power line routing process is more transparent to the public than the pipeline routing process.

"To build that power line that utility company has to go the Public Utility Commission (PUC) to file a set of potential routes," Brady said. The landowners who could be impacted by those potential routes are notified and have the ability to provide input into the route decision-making process.

"On the pipeline side," Brady said, "the pipeline company determines the route. There is no transparency to the landowner in terms of where else the project is going or what are the alternatives."

This difference is frustrating to many of his landowner clients, who have had "no seat at the table" in pipeline route discussions. He and Zabel indicated that landowners might have been willing to accept a lower price for a pipeline easement if they'd been able to discuss an alternative placement across a ranch to lessen the impact of the pipeline route on operations, landscape, scenery or for other reasons. Brady said, "By the time the landowner gets to the table to say this other route would have been so much better, the engineering is already done and the pipeline has already been ordered and set."

Zabel agreed, "I'll echo that. What Zach says is true. On electric lines, if you want to challenge routing, you'd better get to the PUC and intervene, and get it done there, because once the route is approved, it's not changing when you litigate on condemnation."

With pipelines, he said, "The very first time a pipeline company contacts you to get survey permission across your property, if you have a specific route or routing issue, if you want to miss groves of trees, keep it away from certain significant features on your ranch, then the sooner you mention that the better. The more a pipeline company gets down the road with engineering and surveying, the less likely they are going to change the route."

Among pipeline companies, who has the power of eminent domain and who doesn't?

Entities that have power of eminent domain are common carrier pipeline companies and gas utilities, Zabel said. These can be gathering or transmission pipelines.

He provided a little history to explain why certain types of pipeline companies have the power of eminent domain in Texas. "The reason that all came about was Rockefeller and Standard Oil back in the 1900s. He had a monopoly on the crude oil pipelines and no one in Texas could get their crude into a pipeline. He was basically freezing the producers out of getting their product in."

So, Texas' policy makers of the time said, "Everybody who engages in the business of transporting crude in Texas is a common carrier because we want open-access pipelines," he said. Over time, additional products were added to this category - C02, hydrogen, coal slurry - which has never happened - and natural gas liquids."

Brady summarized, "If thou art a crude pipeline, thou art a common carrier - period, paragraph the end, no matter whose product goes in it or who uses it at the other end. That's what the Natural Resources code says and [Tom] has successfully convinced a court to follow what the law is."

If a pipeline company has the power of eminent domain, Zabel said, then they can ultimately route the pipeline where they want, although there are some checks and balances in the process. "But, it's very hard to beat the routing of a condemnor," he said.

Brady agreed, saying, "The process is not predictable and in current law, not transparent. And, it's different for 2 projects that impact landowners exactly the same way," whether the pipeline will carry natural gas or crude. He added, "But on the crude side, even if it was a completely private line, or a segment of a line that wasn't going to have a common carrier status in terms of other people's products, it still has the power of eminent domain. That really is something I think needs to be part of the conversation on common carrier. We need to have that same level of proof for all products."

Zabel referred to the case of Texas Rice Land Partners, Ltd. v. Denbury Green Pipeline-Texas, LLC, settled by the Texas Supreme Court in 2011. This case required Denbury to provide external proof that its C02 pipeline was a common carrier.

Zabel said, "Even though the Supreme Court said that case was limited to C02 lines, in actual practice we haven't seen that across the board. Whether a crude line, natural gas liquid line or refined products line, most sophisticated landowner attorneys are applying the Denbury Texas Rice test of third-party shippers to every kind of pipeline. I think what we're hearing from Zach is that he'd like to see it all uniform and have the same standards apply across the board to all pipeline."

Brady agreed, "1 have been able to apply that to a crude line at least once, and that was because even though it was a crude line and was promoted as a crude line, the pipeline company had the word natural gas in their easement because they wanted to have all the flexibility they could. That's very common when we're negotiating these easements. It first lists every petroleum product known to man and anything man thinks of later. When negotiating, we limit the number of products that can be transported."

Transmission lines - consider every route

Malewitz turned the discussion to the big issues facing landowners on potential routes for new power transmission lines.

Brady urges landowners to react quickly to a notice that their land is on a potential power line route. While there was once a "preferred" route designation among the potential routes utility companies had to propose, that is no longer the case.

In the past, power line companies would indicate their preferred route for a power transmission line in their correspondence with landowners. Landowners on the alternative routes often incorrectly assumed the preferred route was the established route and would ignore the issue.

Landowners on the preferred route would attend the meetings at the PUC and get the route moved off the preferred route and onto one of the alternative routes and onto the land of those who did not participate in the process.

"After that," Brady said, "the eminent domain process works a lot like the pipeline eminent domain process, except the landowners can't really contest the right to take, or not with any legitimate hope of success."

Zabel added, "What I've found with power lines, especially the larger ones, is no one really wants them on their ranch. Routing is very important."

When utility companies first propose a transmission line, they hold public meetings to inform the public about the possible routes. "If you actually want to defeat it and get it off your property, then you have to get with other people who are on the same route you're on," and work together to get it off your property. Trying to work with other landowners on other routes only leads to conflicts among the landowners, he said, "because your main goal is to get it off your ranch. You have to find people on the same route you're on and you have to fight to put it on someone else's route. People want to pool together, save resources and hire the same lawyer. They can't unless on they are same route," he observed.

Zabel recalled a handful of cases in which he represented landowners to the PUC. "There is a fair degree of success if you get enough horsepower behind you to get routes changed from one to another. If you are a squeaky wheel and make things very unpleasant, you have a better chance of shifting to another route.

"Conversely, if you don't get it shifted off the route, a lot of times, the power lines will go right through the best part of your property and bisect it. At the PUC you can talk to them about following boundary properties - moving it somewhere you don't have to look at it. If you don't get the route moved [off your land], at least get it moved to a part of property where it is much less intrusive than putting it in middle of your property."

Zabel repeated his earlier comment, "Fight at the PUC. Once it comes out of the PUC, the only issue you're going to be fighting about in condemnation is damages. That's it."

And that brought up the question of what are damages? Brady said, "I have said for years that power line companies could put guys like me out of business if they would make everybody pretty good offers, but they don't.

"They tend to try to get all the land they can bought at basically zero damage - just the cost of that acreage. Then once they get that bought, they go litigate with everybody else. Some of us think the data show that those power lines do damage the value of the land outside the easement. One reason we think that is because, like Tom just said, nobody wants them. They're ugly and they hurt land value," Brady said.

Transmission line effect on land value

Malewitz asked Brady and Zabel to explain some of the deleterious effects of power transmission lines on land value.

Brady said, "Increasingly, I see power line companies putting on appraisers who say there is some damage outside of just the easement. Fifteen years ago when I started in this kind of work, I was doing some work on the power line side. Nobody testified that there was any damage outside of the easement.

"Now you see appraisers for power line companies trying to figure out ways to limit that damage or calculate it." He continued, saying "Landowners' appraisers have data that indicate the damage could be anywhere from 15 to 25 percent of the value of the ranch," depending on factors such as the size of the property and the size of the power line easement in relation to the size of the property.

Also important, Brady added, is "how the power line easement traverses the property, what we in slang refer to as the 'cut.' A diagonal cut through the heart of the ranch is worse than something on the back," in some cases.

Zabel said, "When we get ready for trial to see if pipelines will affect what people will pay for property, most times the buyers say the pipeline doesn't bother them, but that power line did. The pipeline is underground but the buyer said, T paid less because of power line.'

"When we've tried to do what you call paired sales, compare 2 properties and see why someone paid less for a particular piece of property, I've had buyers tell us they paid less because it had a power line on it," he said.

Malewitz summarized Brady and Zabel's comments saying, "From what I'm hearing, the best advice either of you could give is get involved really early in the process." Zabel agreed, "The longer you sit on your rights, the fewer rights you will have. Get involved early."

Brady suggested landowners might get a disinterested third party to look at their ranch and get their thoughts on how a line might affect it. "Talk to someone who can look at your property with fresh eyes, who can think of ways it might affect the property or potential use of the property that isn't apparent to someone there every day working it.

"It's important to think of not just today, but the future. As I make a point in cross exam in virtually every power line hearing I do, we have never in Texas taken down a mile of 345 KV power line. It's going to be there forever," Brady said.

Creative considerations

Pipelines, being buried, are different, but "that infrastructure is going to be there a long time," Brady pointed out, and existing lines may be converted to other uses. "It's really important that you think through long-term implications and often times the best way to do that is find somebody and talk through it early," he said.

Zabel agreed with Brady's comments and encouraged listeners to "get the right-of-way guy out there to your property and show them" if you have something you think is valuable or unique on your property. "Someone seeing something is much more compelling than telling them something." Showing these valuable assets to the company representative, Zabel said, "makes it easier for the right-of-way person to go back to the head office and make the change."

Zabel said his clients won't make wide moves that would affect the entire ranch, but if it's a matter of "going around significant features on the property, trees, getting away from structures, things of that nature, if you get in early, I think the pipeline company is willing to discuss that. I've seen a lot of success with getting some deviation to satisfy both parties."

Brady agreed, saying, "We do this sort of thing often in terms of trading non monetary conditions for monetary compensation. I've had 2 pipeline cases I've settled this year where part of the settlement was boring, as opposed to trenching the pipeline and disturbing the surface."

Zabel related a case of creative settlement in which a landowner asked a pipeline company to move an existing pipeline and follow the boundary of the property for the next pipeline. In return, the landowner offered to give the pipeline company the next easement free. "The pipeline company agreed to reroute existing line and install both lines along the property line. Pipeline companies can be flexible. Not always, but they can be. If you don't ask, you don't get. The sooner you ask the better chance you might get something you want."

Both attorneys encouraged landowners to get legal help with developing an easement for a pipeline or power line.

"If you don't negotiate an easement with a pipeline company that provides the protections that you want from here on for future generations on your property, then if it goes to condemnation you get the terms of a petition which are not near as robust as what your easement's going to be," Zabel says. "If you go through the condemnation and it goes through the system, you may get more money, but you're not going to get the protections that you would in an easement. It's always good to, early on, get with a lawyer who knows what they are doing to help guide you through the process to get what you're looking for."