I recently ran across this very good article on the tax treatment of payments received for granting of pipeline easements:
Recently in Pipelines Category
Julia Trigg-Crawford, a landowner in Lamar County, has asked the Texas Supreme Court to hear her case arguing that TransCanada has no right to condemn her property for the Keystone XL Pipeline. The Crawford Family Farm Partnership v. TransCanada Keystone Pipeline, L.P., No. 13-0866. Although other segments of the pipeline await federal approval, the segment from Oklahoma across Texas has now been completed and is in operation. Crawford lost her case in the trial court and the Texarkana Court of Appeals, 409 S.W.3d 908, and has asked the Supreme Court to review the case. The Supreme Court asked TransCanada to reply to Crawford's petition, and Texarkana filed its reply on February 6.
Crawford's argument is that Texas law does not grant eminent domain powers to interstate pipelines. TransCanada argues that Crawford's appeal presents the same issues as Rhinoceros Ventures Group, Inc. v. TransCanada Keystone Pipeline, L.P., 388 S.W.3d 305 (Tex. App.--Beaumont 2012, pet. denied), which the Supreme Court declined to review.
Crawford has become a symbol of opposition to the Keystone pipeline, drawing national attention to her cause.
Julia Trigg Crawford has waged a well-publicized fight to prevent condemnation of an easement across her farm for the XL Keystone Pipeline. On August 27, the 6th Court of Appeals in Texarkana denied her appeal of TransCanada Keystone Pipeline's award of an easement over her property. Crawford has vowed to appeal to the Texas Supreme Court.
The Court of Appeals' opinion says that Ms. Crawford had two arguments: first, that the Texas statutes granting pipelines condemnation authority do not apply to interstate pipelines; and second, that Keystone had failed to meet the showing required by the Texas Supreme Court in Texas Riceland Partners v. Denbury Green Pipeline-Texas, 363 S.W.3d 192, 202 (Tex. 2012) that the pipeline must show "a reasonable probability ... that the pipeline will at some point after construction serve the public by transporting gas for one or more customers who will either retain ownership of their gas or sell it to parties other than the carrier." The Texarkana court held that Keystone had met that burden. The court also held that the relevant Texas statutes do grant condemnation authority to interstate common carrier pipelines.
The portion of the XL Keystone pipeline from Cushing, Oklahoma to Port Arthur, Texas is nearing completion. That segment of the pipeline has been able to proceed even though the Obama administration has not yet approved the segment of the system that would carry heavy crude from Canada across the northern segment of the XL Pipeline system.
The Supreme Court's Denbury opinion initially caused significant consternation in the pipeline industry and generated unsuccessful efforts in the last Texas legislative session to amend Texas condemnation statutes to facilitate pipeline condemnations. The Crawford case is an indication that the industry's fears that Denbury would significantly impair pipeline construction in Texas are unfounded and that Texas appellate courts have been able to apply Denbury without much trouble.
State Impact Texas' Mose Buchele has a good article on increased litigation over pipeline condemnations. My partner Bill Christian, who represents landowners in condemnation matters, is quoted in the article. Even has his picture!
Mose Buchele has written a series of articles, also aired on KUT, about the pipeline industry's failed efforts to make it easier for pipelines to exercise the power of eminent domain after the Texas Supreme Court's decision in Texas Rice Land Partners, Ltd. v. Denbury Green Pipeline-Tex., LLC, 363 S.W.3d 192, 198 (Tex. 2012), about which I have written previously. Good reading. Links are below.
Colleen Schreiber has written an excellent article in the June 13 edition of Livestock Weekly, "Landowners Hold Off Oil and Gas Lobby on Common Carrier Bills," describing the blow-by-blow negotiations and lobbying in the pipeline industry's efforts to "solve" the problems created by the Texas Supreme Court's decision in Tex. Rice Land Partners, Ltd. v. Denbury Green Pipeline-Tex., LLC, 363 S.W.3d 192, 198 (Tex. 2012).
Lined up on one side: pipeline lobbyists supporting bills by Rep. Tryon Lewis, R. Odessa, in the House, and Robert Duncan, R. Lubbock, in the Senate, including the powerful Koch brothers, owners of Koch Enterprises.
On the other side: Texas and Southwestern Cattle Raisers Association, Texas Farm Bureau, Texas Land and Mineral Owners' Association, the Bass family, and plaintiffs' lawyers.
Ultimately, all bills failed. The pipeline industry asked the Governor to add their issue to the special session but, so far at least, pipelines have been overshadowed by abortion bills and financing of higher education projects.
In Denbury, the Supreme Court surprised the pipeline industry by holding that they actually have to prove their proposed line will be a "common carrier" before they can use the power of eminent domain to condemn right-of-way. This left the pipelines, in their view, subject to interminable delays and suits by landowners unhappy with the pipeline routes, the terms of their proposed easements and the compensation being offered.
To "fix" the problem, the pipelines proposed that a pipeline's common-carrier status be determined once for each pipeline, at a hearing held before the Texas Railroad Commission. Landowner lobbyists agreed to negotiate and agreed to consider the concept of a single hearing that would determine common-carrier status for a pipeline; but they wanted the hearing to be before the State Office of Administrative Hearings (SOAH), rather than the RRC; they wanted to be sure all landowners likely to be affected got notice of the hearing; and they wanted strict standards to determine whether a pipeline qualifies as a common carrier. In the end, the biggest sticking point was whether the hearings would be before the RRC or SOAH. Pipelines obviously favored the RRC; the landowners, believing that the RRC would not protect their interests, favored SOAH. (Most administrative hearings related to state agencies in Texas are held before administrative judges at SOAH. The RRC is one of the few agencies that has kept the right to have hearings before its own administrative judges, called hearings examiners.)
A bill might have been hammered out, but late in the game plaintiffs' lawyers, led by Wayne Reaud, a lawyer who made a fortune suing tobacco companies, weighed in and refused to compromise. Reaud at the time was fighting a condemnation action brought by CrossTex for a pipeline that would cross lands he owns in Jefferson County. Reaud claimed that CrossTex should not have the right to survey on his land until it proved that it is a common carrier. He sought and obtained a temporary injunction to keep CrossTex off his property. CrossTex appealed that injunction to the 9th Court of Appeals in Beaumont, and the appeal was pending when the pipeline bills were being considered. (The Beaumont court has since issued its opinion affirming the trial court's decision to grant the injunction. The opinion can be viewed here.) The end result was that the pipeline bills died in committee and never came up for a vote in either the Senate or the House.
Underlying the debate over the pipeline legislation is the perception by those representing landowners' interests that the RRC is not the place to have hearings on the qualifications of pipelines to exercise eminent domain, and the insistence by the pipeline interests that the RRC be the judge. The RRC has jurisdiction to enforce other laws affecting landowners' interests, and their experience has been that the RRC is not an agency friendly to landowners' complaints.
The pipeline industry bill intended to "fix" the issues raised by Texas Rice Land Partners v. Denbury Pipeline, appears to be dead in the Texas legislature. The issue: requiring pipelines that assert the power of eminent domain to prove that they qualify as common carriers. The Texas Supreme Court held in Denbury that simply filing a form with the Texas Railroad Commission would not suffice; the pipeline has to show that it will actually use the pipeline to transport oil or gas for hire. This requirement could substantially slow the condemnation process, requiring pipelines to prove their common-carrier status each time they sue to condemn a right-of-way.
The solution proposed by the pipelines: have one hearing, at the Texas Railroad Commission, to establish that a proposed new line will in fact qualify for common-carrier status. That determination will then be binding on all landowners whose property will be crossed by the pipeline. Those landowners would be given the opportunity to participate in the hearings; notice of the hearings would be given by publication in local newspapers. The Texas Farm Bureau, the forestry industry, and other landowner groups opposed the bill. Most major oil and gas asociations favored the bill.
The bill, HB 2748, was defeated Friday on a procedural point of order raised by Democrats that moved it back to committee. Rural Republican representatives were faced with a difficult decision whether to support the bill, in light of opposition by rural landowners. Time is running out before the end of the session and it may be difficult to revive the bill.
Another bill, HB 3547, would establish common carrier status by a hearing before the State Office of Administrative Hearings (SOAH). Industry representatives would prefer such hearings to be before the Railroad Commission, a friendlier venue. HB 3547 has not yet reached the floor. Similar bills in the Senate do not appear to be moving.
The Texas Supreme Court denied the LaSalle Pipeline's petition for review in LaSalle Pipeline v. Donnell Lands, leaving the San Antonio Court of Appeals' original opinion intact. See my discussion of the case here. The trial court awarded $468 per rod $28.36/foot) for an easement for a 16-inch pipeline. The Court of Appeals affirmed, finding sufficient evidence to support the award.
The Texas Railroad Commission denied the Texas Land and Mineral Owners' Association's petition for a rulemaking on the Commission's policy regarding permits for "allocation wells." See my prior posts here and here. In their discussion concerning the petition, the Commissioners agreed that allocation wells should be addressed by rule, but they concluded that there are presently too many pending rulemakings for the Commission staff to take on more at this time. The Klotzmans' protest of EOG's allocation well permit remains pending, awaiting a proposal for decision from the hearings examiners.
This week, the Texas Supreme Court denied Denbury Green Pipeline's motion for rehearing in Texas Rice Land Partners v. Denbury, leaving essentially untouched its conclusion that pipelines must prove that they serve the public in order to exercise eminent domain power.
I wrote about this case a couple of weeks ago. See my prior discussion here. Pipeline companies had deluged the Court with briefs after its initial opinion, claiming that the Court's decision will halt pipeline construction across the state.
While denying Denbury's motion for rehearing, the Court did issue a revised opinion that made some changes to its language. The Court's opinion adds language responding to some of the arguments of the friend-of-the-court briefs filed by other pipeline companies; and the revised opinion changes the holding as follows:
We accordingly hold that for a person intending to build a CO2 pipeline to qualify as a common carrier under Section 111.002(6), a reasonable probability must exist that the pipeline will at some point after construction serve the public by transporting gas for one or more customers who will either retain ownership of their gas or sell it to parties other than the carrier.
The Court also added a footnote to its holding: "Our decision today is limited to persons seeking common-carrier pipeline status under Section 111.002(6) [of the Natural Resources Code]. We express no opinion on pipelines where common-carrier status is at issue under other provisions of the Natural Resources Code or elsewhere." (Section 111.002(6) relates only to pipelines that transport carbon dioxide. Other provisions of the Code cover pipelines that carry natural gas and hydrocarbons.)
James Mann, an Austin attorney and lobbyist for the pipeline industry, was quoted in the Houston Chronicle as commenting that "It's unclear to us just how bad this opinion is. If it only affects CO2 pipelines, it can be survived. If the same holdings are applied to all other types of pipelines, it is disaster for the oil and gas industry." Kent Sullivan, a lawyer with Sutherland Asbill & Brennan in Houston, said that the opinion represents "a substantial shift in power or potential leverage" for landowners. Sullivan predicted that the issue is likely to be a topic in the 2013 legislative session.
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.
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."