Pipelines and Eminent Domain

Last Wednesday, I attended an excellent program sponsored by the Penn State Cooperative Extension, “Making Sense of Natural Gas Pipelines and Right-of-Way Agreements”.  Over the years, I have represented both condemnors and condemnees and was interested to hear how the acquisition process works with the pipeline proposed by Williams in Lancaster County.  I learned many practical and tactical considerations that landowners and their attorneys can use to their benefit.

What is commonly referred to as the “Williams Pipeline” (part of the Atlantic Sunrise Expansion Project to be built by Williams’ subsidiary, Transco) is an interstate pipeline and, therefore, acquisition of the property necessary to construct the pipeline is governed by federal law, not state law.  (Other pipelines, called gathering and distribution lines, are regulated under state law.) 

A natural gas company, such as Williams, is required to obtain a Certificate of Public Convenience and Necessity from the Federal Energy Regulatory Commission (FERC).  This process is currently underway and comments on the potential environmental effects, reasonable alternatives and measures to avoid or lessen environmental impacts can be submitted to the FERC on or before August 18, 2014.  Because the comment period is limited, in order to preserve rights, landowners and other stakeholders are advised to act now.  The FERC issued a Notice of Intent to Prepare an Environmental Impact Statement which includes information as to how to comment. 

In addition, once Williams files its formal application with the Commission, petitions to intervene may be filed. Because those involved in the FERC process may be asked by Williams to withdraw their protest, or intervention as part of the easement negotiations, those who have filed have more bargaining power.

Each property is unique with regard to the impact realized by a pipeline and presents different valuation issues, both with regard to the permanent easement and the temporary construction easement.  Once a matter goes to court, determining just compensation is commonly established by an appraiser but legal precedent can define what may be considered.  For example, courts have split on whether it is permissible to consider “stigma damages”, that is a reduction in value of the property based upon fears of possible mishaps.  Offers made by the pipeline company to other property owners are generally inadmissible to prove just compensation. 

Another consideration needs to be the tax treatment of damages that are received. Taxation of a payment for a permanent easement will be different from payment for crop or timber damage.

In addition to determining the appropriate payment, it is necessary to give much thought to what the written Easement Agreement will provide.  Even though landowners may be presented with a form contract, additional provisions should be negotiated.  Examples include specifying the double ditch method of topsoil removal so that the topsoil can be placed back on the surface and not at the bottom of the trench during site restoration, limiting the easement to one pipeline, definition of substances that can be transported in the pipeline, i.e., scented versus unscented natural gas and specification of surface uses that will be permitted and those uses that are prohibited in the easement area.  Practical recommendations farmers may not have considered include the fact that disruption caused by pipeline construction could impact crop yields for several years, not just the year of construction.  In addition, it is possible to divert a pipeline around obstacles, such as wells, because pipelines can be curved. Other areas to address are listed in the Penn State Extension fact sheet “Negotiating Pipeline Rights-of-Way in Pennsylvania”. 

The two-hour program showed me how many considerations, both practical and legal, need to go into evaluating a proposal from a company to acquire a pipeline easement.  As with any matter, knowledge of the process involved, if no agreement can be reached, is essential to a well-informed settlement. 

Christina Hausner is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, PA. She received her law degree from Duquesne University School of Law and practices in a variety of areas.