February 2012 Archives

February 24, 2012

Texas Supreme Court (finally) Decides EAA v. Day - a Victory for Landowners?

The Texas Supreme Court issued its opinion today in Edwards Aquifer Authority v. Day, more than a year after it was argued and some thirteen years after the controversy began. It has been eagerly awaited as the court's ruling on whether a landowner has a "vested" right in groundwater under his/her land. The Court held that groundwater, like oil and gas, is "an exclusive and private property right ... inhering in virtue of [the landowner's] proprietorship of the land, and of which he may not be deprived without a taking of private property." The case is being heralded by property rights advocates as a victory for private property rights. The court's decision, in an opinion by Justice Nathan Hecht, was unanimous.

The opinion is certainly not surprising. It would have been a surprise to most people to learn that they do not have ownership rights in groundwater under their property. But I question whether it is such a victory for property owners and whether it will materially change the current regulatory scheme for groundwater in Texas.

Justice Hecht's opinion, 49 pages, includes a good summary of the history of groundwater regulation and litigation in Texas over the last 100 years. Remarkably, in all that time the Court had never ruled on the question of whether landowners have a property right in groundwater. The court held that the same rules should apply to groundwater as apply to oil and gas - in both, the landowner has an ownership right in the substance under his/her land, subject to being divested of that ownership by drainage from wells on adjacent lands, and subject to reasonable regulation by the state.

In EAA v. Day, two farmers owned 350 acres south of San Antonio. They applied to the Edwards Aquifer Authority for a permit for their existing water well on the property. Under the rules of the EAA, their right to use water from the well depended on what use they made of the water during the historic period from June 1, 1972 to Mary 31, 1993. The farmers applied for a permit to pump up to 700 acre-feet per year, for irrigation. The EAA granted a permit for only 14 acres, finding that their proof of historic use was not adequate. The farmers then sued, alleging that denial of their permit for 700 acre-feet constituted a taking of their property without compensation. After holding that the farmers did have a "property right" in their groundwater of which they could not be deprived without compensation, the Court remanded the case to the trial court for additional evidence on whether the EAA's regulations did in fact constitute a taking of property for which compensation is due.

This is where the case gets interesting. The court discusses how the trial court, when it gets the case back, should decide whether the farmers are entitled to compensation. Relying on a US Supreme Court case, Penn Central Transp. Co. v. New York City, the court adopted a test of "reasonableness": the trial court must consider "the economic impact of the regulation on the claimant and, particularly, the extent to which the regulation has interfered with distinct investment-backed expectations"; and the "'character of the government action' -- ... whether it amounts to a physical invasion or instead merely affects property interests through 'some public program adjusting the benefits and burdens of economic life to promote the common good.'" Considering these factors, the court must decide whether the economic impact of the regulation on the farmers, considering the promotion of the common good resulting from the regulation of groundwater imposed by the EAA, rises to the level of a "taking" of private property for public use. This in my opinion does not give the trial court much to go on. It is a pretty subjective test and will depend on particular facts. The Supreme Court remanded the case to the trial court to further develop those facts.

So what does this mean for Texas landowners and groundwater districts? Perhaps more litigation. Landowners unhappy with decisions made by their local water district may sue claiming that the district has "taken" their water rights. But, as can be seen by the Day case, such a battle is not to be taken on lightly -- in fact, Mr. Day died before the decision was issued -- and will be expensive. And there is the possibility that an unsuccessful claimant would have to reimburse the water district's legal fees. Most water districts have very limited budgets and so will be reluctant to fight landowners' inverse condemnation suits. As a result, they may be more cautious in how they draft and enforce their regulations.

All in all, the case is an important, but not surprising, milestone in the continuing development of groundwater rights law in Texas.


February 17, 2012

Texas Debate over Pipeline Condemnation Rights Now Affecting Keystone Pipeline

Because of the Texas Supreme Court's recent opinion in Texas Rice Land Partners v. Denbury Pipeline, Texas landowners across the state are questioning the right of pipeline companies to exercise the right of eminent domain to condemn easements over their land, including the right of Keystone Pipeline to condemn easements for its pipeline from Canada and through East Texas to the Texas Gulf Coast.

In the Denbury case, the Supreme Court held that a pipeline does not acquire condemnation authority merely by obtaining a permit from the Railroad Commission and subjecting itself to that agency's jurisdiction as a common carrier. The Commission makes no determination whether the intended use of the pipeline is in fact "public." The court then held that in order for a pipeline to serve a public purpose and thus have condemnation power, "a reasonable probability must exist, at or before the time common-carrier status is challenged, that the pipeline will serve the public by transporting gas for customers who will either retain ownership of their gas or sell it to parties other than the carrier." Once a landowner challenges its status as a common carrier, "the burden falls upon the pipeline company to establish its common-carrier bona fides if it wishes to exercise the power of eminent domain."  The court also held that one affiliated company transporting gas solely for the benefit of another affiliate is not a public use of the pipeline. The court said that the question of whether the pipeline is dedicated to a "public use" is ultimately a judicial question.

The court's opinion has caused a firestorm in the pipeline industry, which claims that the case will halt construction of pipelines across the state. Denbury has asked the court to re-hear the case, and at least sixteen amicus briefs have been filed. One of the most interesting is from ETC NGL Transport LLC, which is in the process of condemning a 125-mile pipeline route to transport natural gas liquids from the Eagle Ford shale to facilites in Mont Belvieu, Texas. ETC claims that a county court at law in Harris County has enjoined ETC from "taking possession of the easement [that ETC has condemned] based on an implied finding that ETC is not a common carrier." ETC claims that, "due to this Court's Denbury opinion, landowners were able to convince a county court at law that ETC, which is clearly a common carrier, is not a common carrier."

Denbury is also being cited in an attempt to halt condemnation proceedings for the Keystone XL pipeline in East Texas. Notwithstanding President Obama's refusal to approve the project, Keystone is apparently continuing with its acquisition of right-of-way in East Texas. "We don't need a presidential permit in order for us to obtain the easements that we need for the right of way for this project," said TransCanada spokesman Terry Cunha.

Keystone PL route.jpg


One landowner group has found at least 89 condemnation suits filed by Keystone in Texas. A landowner in Lamar County, Julia Trigg Crawford, got a restraining order halting any further proceedings on her property until Keystone proved its right to condemn her property. "I'm just an angry steward of the land," Crawford said. "A foreign-owned, for-profit, nonpermitted pipeline has taken a Texan's land. Doesn't sound right, does it?" Watch Ms. Crawford discussing her case here. It is unclear whether the Texas Supreme Court would agree that Keystone's activities in transporting Canadian Crude to the Texas Gulf Coast would qualify it as a "common carrier."


February 6, 2012

Water 101

Texas is in the middle of one of the most severe droughts in recorded history. The population of the state is growing rapidly, and projections are that such growth will continue. Much of Texas is arid semi-desert, with limited rainfall in normal years. Will water become the limiting factor in Texas' growth?

With water so much on everyone's minds, I thought it would be a good idea to review some basic facts about water. The following information is from a presentation made by Tom Mason, former General Manager of the Lower Colorado River Authority, who is now a shareholder at my firm, Graves Dougherty Hearon & Moody.

Water on earth:

-- 97% is in the oceans

-- 3% is fresh water

-- 69% of fresh water is ice - glaciers and icecaps

-- 30% of fresh water is groundwater

-- .3% (three tenths of one percent) of the world's fresh water is contained in rivers and lakes

Last month, Texas' water planning agency, the Texas Water Development Board, published Texas' 2012 Water Plan. This plan was developed through a complex planning process involving 16 regional planning groups. The plan lists 562 recommended water supply projects and strategies to meet the State's expected water demands for the next 50 years. Estimated costs of those projects: $53 billion.

Most significant aspects of the Texas Water Plan:

Conservation. Twenty-five percent of the "new water" proposed by the plan is by conserving existing supplies. About 2/3 of that conservation is from agriculture, most of the rest municipal. Conservation is possible: San Antonio has reduced per capita water consumption by more than 40% over the last 26 years  -- in part because a federal court ordered the city to limit withdrawals from the Edwards Aquifer due to environmental concerns. San Antonio engaged in educaton compaigns, new water pricing (the more you use the higher your rate), low flow toilets, repairs of leaky pipes, outdoor water restrictions. Farmers conserve by laser leveling of fields, changes in crops, more efficient irrigation equipment.

New Reservoirs. Texas' water plan proposes that 17% of "new water" supplies will come from new reservoirs. But there are not many good reservoir sites left in Texas. New dams are very expensive, hard to permit, and few federal dollars are available for such projects. Landowners resist use of eminent domain for reservoirs. Most of the new reservoirs proposed are "off-channel" reservoirs, which will capture heavy flood flows in very large ponds and release them when needed.

Groundwater. 9% of new water supplies are projected to come from development of groundwater resources. About 60% of all water use in Texas now comes from groundwater. Regulation of groundwater development in Texas is handled by groundwater districts. There are now some 96 such districts, and each has its local governing board and sets its own rules. Many districts are underfunded and understaffed. There is now great uncertainty over the powers and limits of groundwater regulation that these districts can impose. With such decentralized management and legal uncertainty, it is difficult to predict how groundwater will meet Texas' future water supply needs.

Water Reuse. The water plan derives 10% of its "new water" for Texas' future from reusing treated sewage effluent. Again, the increased use of treated effluent has caused legal uncertainty: who owns water once it has been treated for reuse?

Desalination. 3.5% of "new water" in the Texas Water Plan is from desalination. The cost of water from desalination is now 2 to 7 times more than river water or groundwater.

Water is a big energy user. The State of California uses almost 20% of its total energy production to treat and move water. The City of Austin's water utility is the single largest customer of the City's electric utility. Energy production is also one of the largest water users, although much of the water used for electric generation is returned to rivers and streams after use.

Water and energy remain two of the biggest challenges for Texas, our nation and the world.