CITE AS
35 Energy & Min. L. Inst. 3 (2014)
Chapter 3
Eminent Domain Authority
for Midstream Pipelines
J. Kevin West
Steptoe & Johnson PLLC
Columbus, Ohio
Paul N. Garinger
Lewis Glasser Casey & Rollins, PLLC
Columbus, Ohio
Karen J. Greenwell
Wyatt, Tarrant & Combs LLP
Lexington, Kentucky
Andrew J. Sonderman
Kegler Brown Hill + Ritter Co., LPA
Columbus, Ohio
§ 3.01.
§ 3.02. § 3.03. Synopsis
Introduction....................................................................................70
Kentucky.........................................................................................71
[1] — Kentucky Appropriation Statutes..........................................71
[a] — Characterization of Natural Gas Liquids...................73
[b] — Public Service/Public Use.........................................76
[2] — Procedure for Condemnation................................................78
[a] — Pre-Filing Requirements............................................78
[b] — Filing Procedure........................................................79
[c] — Post-Filing Procedure................................................ 80
Ohio................................................................................................ 83
[1] — Ohio Appropriation Statutes.................................................83
[a] — Ohio Rev. Code Chapter 1723....................................83
[b] — Ohio Rev. Code Chapter 163.....................................86
[2] — Ohio Case Law Interpreting the
Appropriation Statutes..........................................................87
[a] — Ohio River Pipeline, LLC v. Gutheil.........................87
[b] — Alexander v. Buckeye Pipeline Co............................89
[c] — 2012 ATEX Pipeline Cases....................................... 90
[3] — Ohio’s Appropriation Process...............................................93
[a] — Survey Access............................................................93
[b] — Actions Required Pre-Petition...................................93
§3.01
§ 3.04. § 3.05.
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[c] — Appropriation Proceedings........................................95
[i] — Petition........................................................................95
[ii] — Answer to Petition..........................................95
[iii] — Hearing on Right to Appropriate
and Necessity............................................... 96
[iv] — Mediation...................................................... 97
[v] — Consolidation..................................................98
[vi] — Compensation Trial.......................................98
[vii] — Compensation and Damages....................... 99
[d] — Possession.................................................................100
[e] — Court Costs and Attorneys’ Fees.............................100
[f] — Appeal.......................................................................101
Pennsylvania.................................................................................101
[1] — Pennsylvania Public Utility Commission...........................101
[a] — Statutory Authority..................................................101
[b] — Laser Northeast Gathering Company.....................103
[c] — Peregrine Keystone...................................................105
[d] — Pennsylvania Business Corporation Law................107
[2] — Eminent Domain Procedures..................................108
[a] — Right of Entry...........................................................108
[b] — Condemnation..........................................................108
[c] — Pennsylvania Condemnation Requirements
and Procedures........................................................109
West Virginia................................................................................109
[1] — West Virginia’s Appropriation Statute................................109
[2] — Case Law Interpreting the Appropriation Statutes.............110
§ 3.01. Introduction.
The Marcellus and Utica shale plays have outrun the takeaway capacity
in Ohio, Pennsylvania, West Virginia and Kentucky. Midstream pipeline
developer/operators are currently engaged in planning, siting and constructing
pipelines and appurtenant facilities to carry the natural gas and processed
and fractionated liquids to markets both national and international. The
scale of these projects is significant, involving the acquisition of miles of
land rights to accommodate the required facilities. While the access to state
appropriations procedures is relatively well-established for natural gas and
oil pipelines operating as public utilities, that is not necessarily the case for
developers of natural gas liquids pipelines, sometimes referred to herein as
NGL pipelines.
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§ 3.02
The authors discuss in this chapter the varied nature of statutory
authority, case law interpretation and appropriation procedure available to
the developers of NGL pipelines in Kentucky (Ms. Greenwell); Ohio (Mr.
Sonderman [statutory authority and case law] and Mr. Garinger [procedure]);
Pennsylvania (Mr. West); and West Virginia (Mr. Garinger).
§ 3.02. Kentucky.
[1] — Kentucky Appropriation Statutes.
Kentucky law allows certain entities to invoke the power of eminent
domain to condemn property to which they have otherwise been unable to
acquire title. The statutes particularly applicable to oil and gas midstream
companies are as follows:
Ky. Rev. Stat. § 278.470 provides:
Every company receiving, transporting or delivering a supply of oil
or natural gas for public consumption is declared to be a common
carrier, and the receipt, transportation and delivery of natural gas
into, through and from a pipeline operated by any such company
is declared to be a public use.
Ky. Rev. Stat. § 278.502 provides:
Any corporation or partnership organized for the purpose of, and
any individual engaged in or proposing to engage in, constructing,
maintaining, or operating oil or gas wells or pipelines for
transporting or delivering oil or gas, including oil and gas products,
in public service may, if it is unable to contract or agree with the
owner after a good faith effort to do so, condemn the lands and
material or the use and occupation of the lands that are necessary
for constructing, maintaining, drilling, utilizing, and operating
pipelines, underground oil or gas storage fields, and wells giving
access thereto and all necessary machinery, equipment, pumping
stations, appliances, and fixtures, including tanks and telephone
lines, and other communication facilities, for use in connection
therewith, and the necessary rights of ingress and egress to construct,
examine, alter, repair, maintain, operate, or remove such pipelines
or underground gas storage fields, to drill new wells and utilize
existing wells in connection therewith, and remove pipe, casing,
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equipment, and other facilities relating to such underground storage
fields and access wells. The proceedings for condemnation shall be
as provided in the Eminent Domain Act of Kentucky.
Ky. Rev. Stat. § 416.675 provides:
(1) Every grant of authority contained in the Kentucky Revised
Statutes to exercise the power of eminent domain shall be subject
to the condition that the authority be exercised only to effectuate a
public use of the condemned property.
(2) “Public use” shall mean the following:
(a) Ownership of the property by the Commonwealth, a political
subdivision of the Commonwealth, or other governmental entity;
(b) The possession, occupation, or enjoyment of the property as a
matter of right by the Commonwealth, a political subdivision of the
Commonwealth, or other governmental entity;
(c) The acquisition and transfer of property for the purpose of
eliminating blighted areas, slum areas, or substandard and insanitary
areas in accordance with KRS Chapter 99;
(d) The use of the property for the creation or operation of public
utilities or common carriers; or
(e) Other use of the property expressly authorized by statute.
(3) No provision in the law of the Commonwealth shall be construed
to authorize the condemnation of private property for transfer to
a private owner for the purpose of economic development that
benefits the general public only indirectly, such as by increasing the
tax base, tax revenues, or employment, or by promoting the general
economic health of the community. However, this provision shall not
prohibit the sale or lease of property to private entities that occupy
an incidental area within a public project or building, provided
that no property may be condemned primarily for the purpose of
facilitating an incidental private use.
With the development of large amounts of natural gas in the Marcellus
and Utica shale plays in Pennsylvania, Ohio and West Virginia, producers
are seeking to transport gas and gas products to petrochemical and export
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facilities on the U.S. Gulf Coast. Recent efforts to construct pipelines for
transporting natural gas liquids (NGLs) have focused the attention of the
public and the courts on these statutes.
At the center of this debate in Kentucky is the question whether midstream
pipeline operators have eminent domain authority under Kentucky Revised
Statutes Chapter 278, the answer to which turns on whether midstream
pipeline companies can satisfy the statute’s two main requirements:
1. That the pipeline operators transporting NGLs are transporting
a “gas product” within the meaning of KRS 278.502; and
2. That the pipeline is operating “in public service.”1
[a] — Characterization of Natural Gas Liquids.
A proponent of eminent domain for an NGL pipeline must first establish
that the pipeline is engaged in the transportation of “gas products.” The US
Energy Information Administration defines NGLs as “hydrocarbons — in the
same family of molecules as natural gas and crude oil, composed exclusively
of carbon and hydrogen. Ethane, propane, butane, isobutane, and pentane
are all NGLs . . . .”2
These hydrocarbons such as ethane, propane, butane, isobutane, and
pentane are produced with methane and are constituents of the well production
stream. NGLs are extracted from the natural gas production stream in
processing plants.3 Federal regulations relating to natural gas processing
defines that process and the relationship between the well production stream
and NGLs. For example, the regulation at 40 C.F.R. 60.631(3) provides that
“natural gas processing means the separation of natural gas liquids or other
non-methane gases from produced natural gas, or the separation of NGLs
into one or more component mixtures.”
1
2
Ky. Rev. Stat. § 278.502.
U.S. Energy Information Administration, What are natural gas liquids and how are
they used?, available at http://www.eia.gov/todayinenergy/detail.cfm?id=5930 (last accessed
June 17, 2014).
3Id.
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Kentucky Revised Statutes Chapter 353, which deals with oil and gas
conservation, defines “oil” and “gas” broadly enough to include NGLs:
(7) “Oil” means natural crude oil or petroleum and other
hydrocarbons, regardless of gravity, which are produced at
the well in liquid form by ordinary production methods and
which are not the result of condensation of gas after it leaves
the underground reservoir;
(8) “Gas” means all natural gas, including casinghead gas, and
all other hydrocarbons not defined in subsection (7) of this
section as oil.4
Thus, all hydrocarbons that are not “oil” are “gas” under Ky. Rev.
Stat. § Chapter 353. These state and federal definitions would seem to
definitively characterize NGLs as “natural gas products” for the purposes
of applying the eminent domain grant in Ky. Rev. Stat. § 278. However, that
has not necessarily been the case. Other Kentucky statutes have given the
opponents of eminent domain some ammunition for a contrary argument.
Kentucky’s General Assembly has differentiated between natural gas
and natural gas liquids in the context of taxation. Kentucky’s severance
tax statutes, codified at Ky. Rev. Stat. § 143A.010, et seq., define “natural
resources” for purposes of imposition of severance taxes to include “natural
gas” and “natural gas liquids.”5 This definition has been argued to imply
a distinction between the two that excludes NGLs from the “natural gas
products” referenced in Ky. Rev. Stat. § 278.502. This section does not state,
however, that NGLs are not “natural gas products.” Rather, the attempt
seems to have been to insure the inclusion of NGLs for taxation as a “natural
resource.”
Similarly, Ky. Rev. Stat. § 224.01-400(1)(a) defines “Hazardous
Substances” for purposes of applying environmental regulations. That
definition removes “natural gas, natural gas liquids, liquefied natural gas, or
synthetic gas usable for fuel, or mixtures of natural gas and synthetic gas”
4 Ky. Rev. Stat. § 353.510.
5Id. § 143A.010(3).
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from the definition of “hazardous substances.” Again, the purpose of the
distinction between “natural gas” and “natural gas liquids” seems to be to
insure inclusion and not to create a definitional distinction.
Despite all of this, there seems to be a recognition by those
opposing the application of eminent domain to NGL pipelines that
NGLs are “gas products,” as they have proposed amendatory language
to Ky. Rev. Stat. § 278. Proposed legislation in 2014 sought to amend Chapter
278 to specifically exclude NGLs from the definition of oil and gas products.6
6 H.B. 31, 2014 Reg. Sess. (Ky. 2014). This bill, as passed by Kentucky’s House,
provides as follows:
An act relating to eminent domain and declaring an emergency.
Section 1. KRS 278.502 is amended to read as follows:
(1) As used in this section, the terms “oil or gas” and “oil and gas products” shall
not include natural gas liquids, including ethane, propane, butane, isobutene, pentane,
or any combination of natural gas liquids, [other than those co-produced in Kentucky
incidental to the production of oil or gas in this state].” (Parenthetical information is
not contained in the House Bill).
(2) Any corporation or partnership organized for the purpose of, and any individual
engaged in or proposing to engage in, constructing, maintaining, or operating oil or
gas wells or pipelines for transporting or delivering oil or gas, including oil and gas
products, in public service may, if it is unable to contract or agree with the owner after
a good faith effort to do so, condemn the lands and material or the use and occupation
of the lands that are necessary for constructing, maintaining, drilling, utilizing, and
operating pipelines, underground oil or gas storage fields, and wells giving access
thereto and all necessary machinery, equipment, pumping stations, appliances, and
fixtures, including tanks and telephone lines, and other communication facilities, for
use in connection therewith, and the necessary rights of ingress and egress to construct,
examine, alter, repair, maintain, operate, or remove such pipelines or underground gas
storage fields, to drill new wells and utilize existing wells in connection therewith,
and remove pipe, casing, equipment, and other facilities relating to such underground
storage fields and access wells. The proceedings for condemnation shall be as provided
in the Eminent Domain Act of Kentucky.
Section 2. The provisions of this Act are hereby declared to be retroactive to January
1, 2014, and the provisions of Section 1 of this Act shall apply to any condemnation
action filed on or after that date.
Section 3. Whereas the fundamental right of Kentuckians to remain secure in their
homes and upon their land is presently threatened by private, commercial interests and
no just cause exists for delay, an emergency is declared to exist, and this Act takes effect
upon its passage and approval by the Governor or upon its otherwise becoming a law.
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The bill, which was passed by the Kentucky House but died in the Senate at
the end of Kentucky’s 2014 Legislative Session, would have amended KRS
278.502 to exclude natural gas liquids (other than those produced incidental
to other production) from the definition of oil or gas or oil and gas products.
Though the bill was not passed, the fact that it was proposed at all suggests
that the statute, as written, does not do so. Until the issue is more clearly
decided by case law or statute, these arguments will persist.
[b] — Public Service/Public Use.
The next question is whether midstream pipeline operators which
transport NGLs for ultimate, but not direct, consumption by the public,
operate “in public service” as required by Ky. Rev. Stat. § 278.502. Under
Ky. Rev. Stat. § 278.470, midstream pipeline companies are by definition
common carriers, and the transportation of natural gas through their pipelines
is considered to be a “public use.”
In Milam v. Viking Energy Holdings, LLC, the Kentucky Court of
Appeals held that a gathering line operator had the authority to condemn
under Chapter 278.7 In Milam, the gathering line simply transported gas
from numerous wells to a transmission line and did not provide gas to any
residential or other customers in Kentucky.8 Regardless, the Kentucky Court
of Appeals did not differentiate between gathering and transmission lines in
its application of Ky. Rev. Stat. § 278.502.9
In a 2013 decision, the U.S. District Court for the Eastern District of
Kentucky determined that a gathering line was in “public service” even
though it only transported gas to another pipeline.10 The court held that a
natural gas pipeline operator was a “common carrier” for purposes of Ky. Rev.
Stat. § 278.502, and further found that such a pipeline need not be open to the
public to be in public service. “Highly regulated pipelines that carry highly
flammable materials need not be fully open to the public to be a public use.
7 Milam v. Viking Energy Holdings, LLC, 370 S.W.3d 530, 535-536 (Ky. Ct. App. 2012).
8Id. at 531-32.
9Id. at 535.
10 EQT Gathering, LLC v. Tract of Prop. Situated in Knott Cnty., Ky., 9970 F. Supp. 2d
655 (E.D. Ky. Aug. 26, 2013).
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EQT permits other natural gas companies to use their pipeline to transport
natural gas . . . . So, the . . . pipeline is available for public use by the portion
of the public relevant here – natural gas transportation companies.”11
A similar result was reached by Kentucky’s highest court in Texas Oil
Co. v. Commonwealth, where the Kentucky Supreme Court held that all oil
pipelines are deemed common carriers, are engaged in public service and
have the right of eminent domain.12 Many of these holdings are based upon
the language of Kentucky Revised Statute 278.074, which explicitly states
that a pipeline carrying oil or natural gas is a common carrier and is a public
use. However, it has been argued that the concept of “public use” in Ky. Rev.
Stat. § 278.074 is not co-extensive with the requirement that the pipeline be
“in public service” which is imposed by Ky. Rev. Stat. § 278.470.
In connection with the Bluegrass Pipeline, a proposed NGL pipeline
which would combine existing pipeline with more than 500 miles of new
construction to cross the state of Kentucky, the Kentucky Public Service
Commission staff has opined that “the proposed pipeline will transport NGLs
‘across Kentucky,’ but there will be no Kentucky consumers or ultimate
consumption in Kentucky and, therefore, will not be considered ‘to or for the
public.’”13 This opinion assumes that consumption of the transported product
in Kentucky (rather than transportation of product produced in Kentucky) is
necessary for a finding that the pipeline operates in “public service.” That
was clearly not the position of the Kentucky Court of Appeals in Milam.
The PSC staff view was adopted by the Franklin Circuit Court in its
recent opinion in Kentuckians United to Restrain Eminent Domain, Inc.
(KURED) v. Bluegrass Pipeline Company, LLC, wherein the court stated that
“Bluegrass [the NGL pipeline] does not fall within the scope of the term ‘in
public service’ because it is transporting NGLs interstate through Kentucky.
Bluegrass is not serving Kentucky’s consumers . . . .”14
11Id. at 663.
12 Texas Oil Co. v. Commonwealth, 198 S.W.2d 316, 318 (Ky. 1946).
13 PSC Staff Opinion 2013-006 (July 30, 2013).
14 Kentuckians United to Restrain Eminent Domain, Inc. v. Bluegrass Pipeline Co., LLC,
No. 13-CI-1402, 14-15 (Ky. 2014).
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If the KURED decision stands, operators may have to establish that they
are regulated by the Public Service Commission (PSC) in order to exercise
Chapter 278 condemnation authority. Kentucky Revised Statutes Chapter
278 is entitled “Public Service Commission,” and the Franklin Circuit Court
relied on this heading to limit the applicability of the condemnation authority
in that Chapter to entities regulated by the PSC. The KURED court stated:
“It is clear from the language adopted by the legislature, and the context
of Ky. Rev. Stat. Chapter 278 as a whole, that the right of eminent domain
under Ky. Rev. Stat. § 278.502 is restricted to companies that are regulated
by the PSC.”15
This holding seems to contradict Ky. Rev. Stat. § 446.140, which provides
that title heads, chapter heads, section and subsection heads or titles, and
explanatory notes and cross references in the Kentucky Revised Statutes,
do not constitute any part of the law, except as provided in Ky. Rev. Stat.
§ 355.1-109.16 Moreover, in its 2014 legislative session, Kentucky’s General
Assembly declined to pass an amendment that would have limited the
application of Ky. Rev. Stat. § 278.502 to utilities regulated by the PSC.17
The KURED decision is on appeal to the Kentucky Court of Appeals, and
additional legislative efforts are anticipated in future legislative sessions.
[2] — Procedure for Condemnation.
Assuming that midstream operators are found to have condemnation
authority under KRS 278.502, “[t]he proceedings for condemnation shall
be as provided in the Eminent Domain Act of Kentucky,” which is codified
at Ky. Rev. Stat. § Chapter 416.18
[a] — Pre-Filing Requirements.
Prior to filing a condemnation action, a would-be condemnor must make
a “good faith” effort to negotiate with the property owner “to effect a contract
15Id. at *13.
16 Ky. Rev. Stat. § 446.140 (2014).
17 S.B. 14, 2014 Reg. Sess. (Ky. 2014).
18 Ky. Rev. Stat. § 278.502.
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of purchase satisfactory to the condemnor.”19 This good faith requirement
has been interpreted “to require at least one offer to purchase the property
to be condemned.”20
The condemnor is not required to obtain an appraisal of the property
it seeks to condemn, but can rely on other methods for determining a fair
offer price.21 “Prior to filing a condemnation action, a condemnor has the
right to enter the land sought to be condemned “in order to make studies,
surveys, tests, sounding, and appraisals, provided that the owner of the land
or the party in whose name the property is assessed has been notified ten
(10) days prior to entry on the property.”22
[b] — Filing Procedure.
The condemnation process begins upon filing of a verified petition
in the circuit court of the county in which all or the greater portion of the
property sought to be condemned is located.23 This petition must contain “[a]
llegations sufficient to show that the petitioner is entitled, under the provisions
of applicable law, to exercise the right of eminent domain and to condemn
the property . . .”24 KRS 278.502 requires that the plaintiff establish that the
property sought to be condemned is “necessary for constructing, maintaining,
drilling, utilizing, and operating pipelines.” Where a pipeline must be laid
for public necessity, and where the pipeline company has no property of its
own, a practical necessity exists to locate the line on the property of others.25
Reference may be made to condemnations by railroad companies for the
purpose of constructing a right-of-way: “The location of the line of the road
is allowed by law to be done by the promoters of the road. The route which
19See id.; Ky. Rev. Stat. § 416.550 (establishing an analogous “good faith effort”
requirement); Usher & Gardner, Inc. v. Mayfield Indep. Bd. of Ed., 461 S.W.2d 560, 562–63
(Ky. 1970); EQT Gathering, 970 F. Supp. 2d at 664.
20 EQT Gathering, 970 F. Supp. 2d at 664.
21Milam, 370 S.W.3d at 536.
22 Ky. Rev. Stat. § 416.560(4).
23Id. § 416.570.
24Id. at (1).
25 Petroleum Exploration v. Hensley, 213 S.W.2d 262, 264 (Ky. 1948).
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they select, when done in the manner pointed out by the statute, raises a
presumption that it is a necessary route . . . . But necessity as used in these
statutes does not mean absolute necessity, but should be held to cover what
is appropriate and convenient to carry into effect the right conferred.”26
The petition must also contain a particular description of the property to
be condemned,27 and an “application to the court to appoint commissioners
to award the amount of compensation the owner of the property sought to
be condemned is entitled to receive therefor.”28
[c] — Post-Filing Procedure.
The circuit court appoints as commissioners for the condemnation three
“impartial housekeepers of the county who are owners of land.”29 The
commissioners are tasked with viewing the property, and within 15 days
of their appointment they must file a Report with the court as to what they
believe is the difference between the market value of the entire property
before the taking, and the market value of the remainder of the property
after the taking.30
After the Report is filed, the condemnor requests that the court clerk
issue process against the relevant property owner that requires such person
to show cause why the condemnor does not have the right to condemn the
land.31 The property owner has 20 days to file an Answer or other proper
pleading challenging the petitioner’s right of condemnation.32
If no such challenge is made, the court enters an interlocutory judgment
containing:
1. A finding that the petitioner has the right under applicable law to
condemn the property or the use and occupation thereof;33
26Id. (internal citations omitted).
27 Ky. Rev. Stat. § 416.570(2) (2014).
28Id. § 416.570(3).
29Id. § 416.580(1).
30Id. § 416.660.
31Id. § 416.590.
32 Id. § 416.600.
33Id. § 416.610 (2)(a).
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2. A finding that the commissioners’ report conforms to statutory
requirements;34
3. An authorization to possess the property for the purposes and
under the conditions and limitations, if any, set forth in the petition
upon payment to the owner or to the clerk of the court the amount
of the compensation awarded by the commissioners;35 and
4. Provision for the conveyance of the title to the condemned land
and material, as adjudged therein.36
If the court does not enter this interlocutory judgment soon after the
expiration of the twenty (20) day period, a motion requesting same may be
prudent.
If the condemnor’s right to condemn is challenged, “the court shall,
without intervention of jury, proceed forthwith to hear and determine whether
or not the petitioner has such right.”37 If the condemnor prevails, the court
enters an interlocutory judgment as described above.38
If the condemnee is successful, the court enters a final judgment that
must contain the following:
a. A finding that the commissioners’ report conforms to applicable
law;39
b. A finding that the petitioner is not authorized to condemn
the property for the purposes and under the conditions and
limitations set forth in the petition, stating the particular ground
or grounds on which the petitioner is not so authorized;40 and
c. An order dismissing the petition and directing the petitioner to
pay all costs.41
34Id. § 416.610 (2)(b).
35 Id. § 416.610 (2)(c)
36 Id. § 416.610 (2)(d).
37 Id. § 416.610 (4).
38Id.
39Id. § 416.610 (4)(a).
40Id. § 416.610 (4)(b).
41Id. § 416.610 (4)(c).
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Within thirty (30) days of entry of the interlocutory judgment that was
favorable to the condemnor, either the condemnor or condemnee may file
exceptions to the commissioners’ award.42 While this mechanism allows the
parties to challenge the valued amount of the taking, “the owner shall not be
permitted to raise any question, nor shall the court reconsider any question
so raised, concerning the right of the petitioner to condemn the property.”43
The proper measure of damages is the difference in fair market value
of land before and after taking,44 though many disputes regarding valuation
turn on which elements of damages should be considered. For example, in
Tennessee Gas Transmission Co. v. IGO, an action to condemn property for
construction of an oil and gas pipeline, Kentucky’s highest court found that
consideration of the practical destruction of condemned land for farming
purposes, the burdens imposed by the condemnation on the landowner’s
remaining property, and the infringement of the landowner’s dominion
arising from the right to enter and traverse all the realty, were all proper
elements of damage for a jury.45 In Rogers v. Tennessee Gas Transmission
Co., the court addressed the proper measure of damages when an oil and
gas pipeline company laid an additional pipeline across its existing right of
way on a landowner’s property.46 While the court did not allow the jury to
award damages resulting from emergencies which were unlikely to occur, it
did allow damages for potential runoff, since similar damages had already
occurred in connection with the company’s existing pipeline.47 Other
non-compensable elements of damages include reasonable restriction of
access, rerouting of public highways, and circuity of travel caused by the
condemnation;48 injuries to a business and loss of business profits;49 and
42 Id. § 416.620(1).
43Id.
44 Gulf Interstate Gas Co. v. Garvin, 368 S.W.2d 309 (Ky. 1963).
45 Tennessee Gas Transmission Co. v. IGO, 234 S.W.2d 149, 151 (Ky. 1950).
46 Rogers v. Tennessee Gas & Transmission Co., 202 S.W.2d 737, 739-40 (Ky. 1947).
47Id.
48 Com., Dep’t of Highways v. Diuguid, 469 S.W.2d 707, 708 (Ky. 1971).
49 Com., Dep’t of Highways v. R.J. Corman R.R. Co./Memphis Line, 116 S.W.3d 488, 496
(Ky. 2003).
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“interference with the owner’s use and enjoyment of property not taken,
resulting from the reasonable construction operations.”50
Other considerations apply where the condemned property is under lease:
In Kentucky, “if the condemnation taking makes the property unsuitable for
the particular business of the lessee, the lease may still have market value for
some other purpose, so the lessee has lost only the difference between the
former market value of his lease and the aftermarket value.”51 If the lease
is disadvantageous to the lessee, the lessee will be entitled to no damages.52
Conversely, if a landowner has leased his property at higher than the market
rate, he will not be compensated for this “profit” in a condemnation.53
Any exceptions filed to the amount of the court’s award are tried by
jury, and all costs are adjudged against the condemnor.54 Upon the final
determination of the exceptions, or if no exceptions are filed within the
timeframe allowed, the court enters such orders as are proper for the
conveyance of title and enters a final judgment.55
§ 3.03. Ohio.
[1] — Ohio Appropriation Statutes.
[a] — Ohio R.C. Chapter 1723.
Section 1723.01 of the Ohio Revised Code (hereinafter “Ohio R.C.”)
establishes the authority of companies organized for the purpose of
transporting “natural or artificial gas, petroleum, coal or its derivatives . . .
through tubing, pipes, or conduits; . . . for storing, transporting, or transmitting
. . . natural or artificial gas, petroleum, or coal or its derivatives . . . ” to
“enter upon any private land to examine or survey lines for its tubing, pipes,
conduits, and may appropriate so much of such land, or any right or interest
therein, as is deemed necessary for the laying down or building of such
50 Com., Dep’t of Highways v. Ray, 392 S.W.2d 665, 668 (Ky. 1965).
51 Com., Dep’t of Highways v. Sherrod, 367 S.W.2d 844, 849 (Ky. 1963).
52Id.
53Id.
54 Ky. Rev. Stat. § 416.620 (1); id. § 416.620(4).
55Id. § 416.620(6).
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tubing, conduits, pipes . . . receiving and delivery structures or facilities . . .
and other buildings, structures.” Companies organized to transport natural
gas liquids (NGLs), which are produced in gaseous state with raw natural
gas, are not specifically identified as qualified to exercise these powers.
The unresolved issue is whether NGLs are properly included in “natural or
artificial gas, petroleum, coal or its derivatives.”
The procedure to appropriate property to be followed by entities
organized for these specified purposes is dealt with in Ohio R.C. 1723.02:
The appropriation referred to in section 1732.01 [sic] of the Revised
Code shall be made in accordance with sections 163.01 to 163.22
of the Revised Code. So far as the rights of the public therein are
concerned, the director of transportation or other state official
having supervision or control as to state roads, the board of county
commissioners as to county roads, the board of township trustees
as to township roads, and the legislative authority of municipal
corporation as to streets and alleys in their respective jurisdictions,
may grant to such companies, subject to such regulations and
restrictions as such public officials prescribe, the right to lay such
tubing, pipes, conduits, poles, and wires therein. But the right to
appropriate for any of the purposes specified in such section does
not extend to the erection of any tank, station, reservoir, or building,
or lands therefor, or to more than one continuous pipe, conduit, or
tubing, or lands therefor, in or through a municipal corporation,
unless the legislative authority first consents thereto.
Section 1723 does not empower entities organized for the described
purposes to appropriate or acquire rights in any municipal street, alley,
highway or public way or land located within the municipality without the
municipality’s consent.56
If a company is organized for the purposes listed in Ohio R.C. § 1723.01,
it may transport, store, insure and ship natural gas, petroleum, coal or its
derivatives “and may lay down, construct, and maintain the necessary pipes,
56 Ohio Rev. Code § 1723.03 (2014).
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tubing, tanks, machinery, and arrangements.”57 A qualifying company “may
take, by purchase or otherwise, and hold such real and personal estate, and
may erect or purchase the necessary buildings and machinery for carrying on
the business . . . as may be necessary to transport oils, coal or its derivatives, or
water through tubes and pipes.”58 Interestingly, natural gas is not mentioned
in this section, but because a company organized to transport natural gas is
“described in Ohio R.C. § 1723.01,” this section would nonetheless appear
to apply.
A pipeline company transporting natural gas, petroleum, coal or its
derivatives “is a common carrier and is subject to the duties and liabilities
of a common carrier under the laws of this state.”59 This is an important
designation for NGL pipelines, since entities transporting NGLs are explicitly
excluded from the definition of a “pipe line company” and thus are not “public
utilities” under Ohio R.C. § 4905.02.60
57Id. § 1723.05.
58Id. § 1723.06.
59Id. § 1723.08.
60 Ohio R.C. § 4905.02 declares every entity defined in § 4905.03 to be a public utility.
Section 4905.03 includes the following definitions:
As used in this chapter, any person, firm, copartnership, voluntary association, jointstock association, company or corporation, wherever organized or incorporated, is:
***
(E) A natural gas company, when engaged in the business of supplying natural gas for
lighting, power, or heating purposes to consumers within this state. Notwithstanding
the above, neither the delivery nor sale of Ohio-produced natural gas or Ohio-produced
raw natural gas liquids by a producer or gatherer under a public utilities commissionordered exemption, adopted before, as to producers, or after, as to producers or
gatherers, January 1, 1996, or the delivery or sale of Ohio-produced natural gas or
Ohio-produced raw natural gas liquids by a producer or gatherer of Ohio-produced
natural gas or raw natural gas liquids, either to a lessor under an oil and gas lease
of the land on which the producer’s drilling unit is located, or the grantor incident to
a right-of-way or easement to the producer or gatherer, shall cause the producer or
gatherer to be a natural gas company for the purposes of this section.
(F) A pipe-line company, when engaged in the business of transporting natural gas,
oil, or coal or its derivatives through pipes or tubing, either wholly or partly within this
state, but not when engaged in the business of the transport associated with gathering
lines, raw natural gas liquids, or finished product natural gas liquids.
(Emphasis supplied).
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[b] — Ohio R.C. Chapter 163.
If a company is organized for a purpose described in Ohio
R.C. § 1723.01, additional important definitions apply to the use of the
appropriations procedure in Ohio R.C. Chapter 163.
A distinction is drawn in Ohio R.C. § 163.01(A) and (B), between
“public agencies” (including any governmental unit, organization or office
authorized by law to appropriate property) and “private agencies” (including
any corporation or entity that is not a public agency but is authorized to
appropriate property). “Public utility” has the same definition as contained
in Ohio R.C. §§ 4905.02 and 4905.03.61
The required showing by an applicant who qualifies to utilize the
statutory appropriation power is set forth in Ohio R.C. § 163.021(A):
No agency shall appropriate real property except as necessary and
for a public use. In any appropriation, the taking agency shall show
by a preponderance of the evidence that the taking is necessary
and for a public use.
It is in the context of this requirement that the applicant must show that
the taking is for a “public use” that the “common carrier” designation is
important to NGL pipelines. Ohio R.C. § 163.01 (H) (1) provides in pertinent
part as follows:
“Public use” does not include any taking that is for conveyance to
a private commercial enterprise, economic development, or solely
for the purpose of increasing public revenue, unless the property
is conveyed or leased to one of the following:
A public utility, municipal power agency, or common carrier . . . 62
(Emphasis added).
61 Ohio Rev. Code § 163.01(G) (2007):
“Public utility has the same meaning as in section 4905.02 of the Revised Code
and also includes a public utility owned or operated by one or more municipal
corporations, an electric cooperative, and an agency holding a certificate of public
convenience and necessity granted by the federal energy regulatory commission.
Note that under the Natural Gas Act, interstate natural gas pipelines are certificated
and are granted eminent domain authority. See 15 U.S.C. §§ 717f(e), (h) (2014).
Interstate oil pipelines are not required to obtain certificates of public convenience
and necessity and are not accorded eminent domain authority.
62 Ohio Rev. Code § 163.01 (H)(I).
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Hence, the statutory authority to appropriate by eminent domain is clear.
What is unresolved is whether an NGL pipeline developer fits the statutory
framework of a company organized for the purpose of transporting natural
or artificial gas, petroleum, or coal or its derivatives. It would be clear if the
General Assembly had expressly included NGL pipelines among the defined
companies in Ohio R.C. § 1723.01 — but it has not done so to date.
[2] — Ohio Case Law Interpreting the Appropriation Statutes.
Unfortunately, Ohio case law is rather immature and incomplete
regarding natural gas liquids. This is largely because these hydrocarbons
have not until recently been a significant economically valuable commodity
to producers in Ohio. That has changed with the Utica Shale play, where “wet
gas” premiums associated with the processed NGLs make the production
of those fields a priority.63
[a] — Ohio River Pipeline, LLC v. Gutheil.
The Ohio Supreme Court has yet to rule whether companies organized
to transport NGLs fit the description in Ohio R.C. § 1723.01 of pipelines that
transport “natural gas, oil, petroleum or coal or its derivatives.” Decisions
of potential application to NGLs at the court of appeals level are quite
limited. Two contemporaneous decisions in 2001 by Ohio’s 4th and 5th
District Courts of Appeals64 held that pipeline operators transporting jet
fuel, a refined petroleum byproduct, were engaged in the transportation
of “petroleum” for purposes of Ohio R.C. Chapter 1723.65 In Ohio River
Pipeline, LLC v. Gutheil, the 4th District relied on its review of definitions
of petroleum appearing elsewhere in the Ohio Revised Code.66 One example
63 See generally, Halbritter, Natural Gas Liquids — What Are They, Where Do They Go,
and Under What Contract Terms), supra at 35 Energy & Min. L. Inst. 4 (2013).
64 Ohio River Pipe Line LLC v. Henley, 144 Ohio App.3d 703, 761 N.E.2d 640 (5th Dist.
2001); Ohio River Pipe Line LLC v. Gutheil, 144 Ohio App.3d 694, 761 N.E.2d 633 (Ohio
Ct. App. 2001).
65 The courts below in both Henley and Gutheil had concluded that only unrefined
petroleum and not refined petroleum by-products were within the statutory definition in
Ohio Rev. Code § 1723.01 (2014) (emphasis added).
66 Citing Cablevision of the Midwest Inc. v. Gross, 70-Ohio St.3d 541 (Ohio 1994).
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it cited was Ohio R.C. § 3737.87(J), part of Ohio’s underground storage tank
remediation regime:
“Petroleum” means oil or petroleum of any kind and in any form,
including, without limitation, crude oil or any fraction thereof,
petroleum, gasoline, kerosene, fuel oil, sludge, oil refuse, used oil,
substances or additives utilized in the refining or blending of crude
petroleum or petroleum stock, natural gas, natural gas liquids,
liquefied natural gas, synthetic gas usable for fuel, and mixtures of
natural gas and synthetic gas.
This is perhaps the broadest possible construction of “petroleum.”
However, a statute dealing with cleanup of spills of petroleum products
properly should have the most expansive definition of such substances.
Question whether this provision would apply with equal force to an
appropriation statute which is not to be accorded liberal construction.67
Another example cited by the Gutheil court was the definition of “oil”
appearing in Ohio R.C. § 1509.01(B), in the chapter of the Revised Code
dealing with regulation of production of oil and gas by the Ohio Department
of Natural Resources Division of Oil and Gas Resources Management:
“Oil” means crude petroleum oil and all other hydrocarbons,
regardless of gravity, that are produced in liquid form by ordinary
production methods but does not include hydrocarbons that were
originally in a gaseous phase in the reservoir.”
(Emphasis added).
NGLs are “originally in a gaseous phase in the reservoir” and are
produced with raw natural gas, and the liquids are processed out of the
natural gas stream thereafter. For that reason, Ohio R.C. § 1509.01(B)
does not support a conclusion that NGL pipeline developers are authorized
to employ condemnation as transporters of petroleum or oil under the
67 Ohio Const. art. I § 19 provides in pertinent part that “[p]rivate property shall ever be
held inviolate, but subservient to the public welfare.” It also requires that “where private
property shall be taken for public use, a compensation therefore shall first be made in money,
or first secured by a deposit of money; and such compensation shall be assessed by a jury,
without deduction for benefits to any property of the owner.”
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authority of Ohio R.C. Chapter 1723. The next subsection further buttresses
this conclusion. Ohio R.C. § 1509.01(C) defines “gas” as “all natural gas
and all other fluid hydrocarbons that are not oil, including condensate.”68
(Emphasis added) Since this section distinguishes “natural gas” and “all
other fluid hydrocarbons that are not oil including condensate,” it may be
seen as detracting from the conclusion that NGL pipeline developers are
transporting either natural gas or oil.
[b] — Alexander v. Buckeye Pipeline Co.
The Gutheil decision also relied upon the Ohio Supreme Court’s
decision in Alexander v. Buckeye Pipe Line Co.69 In that case, the supreme
court affirmed the trial court and court of appeals’ decisions in favor of the
pipeline operator. At issue was whether right-of-way agreements executed in
1911 and 1947 which referred to the pipeline transportation of “oil” or “oil
and gas” were limited to pipelines transporting crude oil and natural gas “as
opposed to the products of gasoline, two grades of fuel oil, gas oil, propane
and butane, all of which have been transported from time to time through
the lines.”70 The court determined that all forms of oil and gas were covered
by the language of the right of way agreements:
The court does not find the terms “oil” and “gas” ambiguous.
The terms are descriptive in nature and have traditionally
represented a specific class of products that may be transported.
The popular meaning of the word “oil” appeared in Webster’s
New International Dictionary (1 Ed. 1927) as “ * * * [a]ny of a
large class of unctuous combustible substances which are liquid,
or at least easily liquefiable on warming and soluble in ether, but
not in water.” The term “gas” was defined as “ * * * any gas or
gaseous mixture, with the exception of atmospheric air; specif.:
* * * b. Any combustible gaseous mixture used for illuminating
or as a fuel. * * * ”
68 Ohio Rev. Code § 1509.01(c) (emphasis added).
69 Alexander v. Buckeye Pipe Line Co., 53 Ohio St.2d 241, 374 N.E.2d 146 (Ohio 1978).
70 Id. at 247.
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It is clear that at the time of the execution of the 1911 right-ofway agreement, the words “oil” and “gas” included products in
both the refined and natural states. A restriction of these terms
could easily have been achieved by use of a qualifying adjective
such as “crude” or “natural.” Because the parties executing
this agreement did not choose to qualify the terms of “oil” and
“gas,” we must therefore assume that they intended no restrictive
meaning.”71
(Emphasis added).
In contrast to the drafters of the agreements at issue in Buckeye Pipeline,
the General Assembly in Ohio R.C. § 1723.01 did employ the qualifier
“natural” for gas. Because of the distinction drawn in Chapter 1509 between
natural gas and “all other fluid hydrocarbons that are not oil including
condensate” the appellate decisions Gutheil and Henley do not provide clear
precedent for the premise that Chapter 1723 is available to NGL pipeline
developers.
[c] — 2012 ATEX Pipeline Cases.
This is not to say that NGL pipelines have not asserted eminent
domain rights successfully under Chapter 1723 of the Revised Code. In
2012, Enterprise Liquids Pipeline LLC succeeded in obtaining temporary
restraining orders in common pleas courts in Butler County, Warren County
and Jefferson County allowing it access to survey for the ATEX Ohio pipeline
project.72 On their face, these would seem to provide precedent supporting
71Id. at 247-48 (emphasis added).
72 Enterprise Liquids Pipeline LLC v. HLF Financial, LLC, No. 12-CV-81850 (Warren
County C.P., TRO issued April 11, 2012); Enterprise Liquids Pipeline LLC v. Larry Denny,
No. 12-CV-81898 (Warren County C.P., TRO issued April 19, 2012); Enterprise Liquids
Pipeline LLC v. Stanley Alexander, No. 12-CV-81897 (Warren County C.P. TRO issued
April 24, 2012); Enterprise Liquids Pipeline LLC v. Jack Cornett, Trustee, No. 12-CV041420 (Butler County C.P., TRO issued April 25, 2012); Enterprise Liquids Pipeline LLC
v. Emlee’s Run, LLC, Case No. 12-CV-81965 Warren County C.P. TRO issued April 30,
2012; Enterprise Liquids Pipeline LLC v. Nancy M. Hyde, Case No. 12-CV-00212 (Jefferson
County C.P. TRO issued May 16, 2012).
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the applicability of Chapter 1723 of the Ohio Revised Code to NGL pipeline
developers. However, the essential justification for the issuance of these
restraining orders appears to have been the Gutheil decision just analyzed.
The verified Complaint in the most recently filed of those cases,
Enterprise Liquids Pipeline LLC v. Nancy Hyde, alleged that Enterprise is
a company organized for lawful purposes, including “transporting natural
gas, petroleum, oil, and their derivatives” through pipelines; that it would
transport liquid ethane produced from the Marcellus and Utica shale to
ethylene manufacturing plants in Texas and Louisiana; and that “liquid ethane
is a petroleum product derived from the natural gas extraction process.”73
Enterprise alleged that it “has eminent domain power under Ohio Revised
Code (R.C.) 1723.01 because it is organized for the purpose of, and is engaged
in the business of transporting, storing and/or transmitting liquid ethane, a
petroleum product, through tubing, pipes, or conduits.”74 (Complaint, p.7). In
its Memorandum in Support of its Motion for Temporary Restraining Order,
Enterprise cited both Ohio River Pipe Line LLC v. Henley and Ohio River
Pipe Line v. Gutheil. as supporting the proposition that pipeline companies
transporting liquid ethane have a right to appropriate property under ORC
§ 1723.01. It also noted that the Gutheil decision collected statutes “broadly
defining petroleum, including a statute that states that petroleum includes
“natural gas liquids, and finding that petroleum includes refined substances.”
It concluded its analysis of the applicability of ORC § 1723.01 by stating that
“[e]thane is a natural gas liquid, a petroleum product derived from the natural
gas extraction process” thus causing Enterprise to fall “squarely within the
realm of those legal entities upon which the State of Ohio has bestowed
eminent domain powers.”75
The Gutheil decision indeed cites as support a statute that referred to
natural gas liquids as being included in a definition of “petroleum.” That
73 Complaint at 3-4, Enterprise Liquids, No. 12-CV-00212.
74 Complaint at 7, supra n. 73.
75 Enterprise Liquids Pipeline v. Hyde, Memorandum in Support filed on May 4, 2012,
p. 10, 11.
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statute was Ohio R.C. § 3746.01(L),76 which also included “natural gas” in
the definition of “petroleum;” and in the context of environmental remediation
voluntary action plans with which Ohio Rev. Code Chapter 3746 deals, it
makes good sense to have such global scope to the definition of petroleum.
Ohio Rev. Code § 1723.01 refers separately to companies organized for
the purpose of transporting “natural or artificial gas, petroleum, coal or its
derivatives, water, or electricity through tubing pipes or conduits . . . ” There
would have been no reason to state “natural or artificial gas” separately if
the General Assembly intended that these substances be subsumed in the
definition of “petroleum.”
It is respectfully submitted that while preliminary rulings have been
made in trial courts in three counties authorizing the use of Chapter 163
appropriation procedures by NGL pipeline developers, the availability of
statutory appropriation in Ohio to NGL pipeline developers has not been
authoritatively determined. A legislative clarification explicitly identifying
companies organized for the purpose of transporting natural gas liquids
would be most helpful.
76When Gutheil was decided, this definition appeared in Ohio R.C. § 3746.01(J). However
the text of this subsection was not amended when it was moved to its current subsection. It
reads in its entirety:
(L) “Petroleum” means oil or petroleum of any kind and in any form, including,
without limitation, crude oil or any fraction thereof, petroleum, gasoline, kerosene,
fuel oil, oil sludge, oil refuse, used oil, substances or additives utilized in the
refining or blending of crude petroleum or petroleum stock, natural gas, natural
gas liquids, liquefied natural gas, synthetic gas usable as fuel, and mixtures of
natural gas and synthetic gas.
In this sense, as with the Gutheil court’s discussion of Ohio R.C. § 3737.8(J), it
was relying on environmental remediation statutes which by their terms were
broadly defining oil, natural gas and petroleum. It is respectfully submitted that
the distinctions drawn between NGLs and natural gas and oil or petroleum in
Chapters 4905 and 1509 of the Revised Code are more appropriately referenced
than the remedial statutes on which Gutheil relied heavily.
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[3] — Ohio’s Appropriation Process.
[a] — Survey Access.
Ohio’s appropriation statute first provides the pipeline company access
to the property for the purpose of “surveys, soundings, drillings, appraisals,
and examinations as are necessary or proper for the purpose of the pipeline
company.”77 The pipeline company is required to give notice of entry not less
than forty-eight (48) hours nor more than thirty (30) days prior to the date
of entry. The company must also pay restitution for any damage resulting
from entry on the property.78
Enterprise Liquids Pipeline LLC successfully applied Ohio’s statutory
right to enter upon and survey property crossed by its ATEX pipeline.79 The
ATEX is a natural gas liquids line, which provides further support for the
application of Ohio’s eminent domain authority to NGL pipelines.
[b] — Actions Required Pre-Petition.
Prior to filing a petition to appropriate property, the pipeline company is
required to provide notice to the landowner of its intent to acquire the property
at least thirty (30) days prior to the filing of an appropriation petition.80 Notice
must be sent personally or by certified mail to the owner of the property. A
form notice letter is included in Ohio’s Appropriation Statute.81
Along with the required notice, pipeline companies must provide a copy
of an appraisal to the owner “at or before the time the agency makes its
77 Ohio Rev. Code § 163.03.
78Id.
79 Enterprise Liquids Pipeline LLC v. HLF Financial, LLC, No. 12 –CV-81850 (Warren
County C.P., TRO issued April 11, 2012); Enterprise Liquids Pipeline, LLC v. Larry Denny,
No. 12-CV-81898 (Warren County C.P., TRO issued April 19 2012). Enterprise Liquids
Pipeline LLC v. Stanley Alexander, No. 12-CV-81897 (Warren County C.P. TRO issued
April 24, 2012); Enterprise Liquids Pipeline LLC v. Jack Cornett, Trustee, No. 12-CV041420 (Butler County C.P., TRO issued April 25, 2012); Enterprise Liquids Pipeline LLC
v. Emlee’s Run, LLC, No. 12-CV-81965 (Warren County C.P. TRO issued April 30, 2012);
Enterprise Liquids Pipeline LLC v. Nancy M. Hyde, No. 12-CV-00212 (Jefferson County
C.P. TRO issued May 16, 2012).
80 Ohio Rev. Code § 163.04(A).
81Id. § 163.041.
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first offer to purchase the property.”82 A literal reading of the statute would
require an appraisal to be submitted before any offer is made by the company
or its landmen. However, an advisable strategy is to submit the appraisal to
the landowner along with the good faith offer referenced below. When the
appraisal shows the property is worth less than $10,000, the pipeline company
only needs to provide a summary of the appraisal.83
In addition to the appraisal and required notice of intent to acquire the
property, the pipeline company must provide a written good faith offer to
purchase the property.84 The offer may be revised before filing the petition if
new information is discovered that could not reasonably have been discovered
before the good faith offer was made. It is important to consider the potential
compensation to be awarded by the jury as the landowner would be entitled
to attorneys’ fees if the jury award is over 125% of the good faith offer.
Finally, the pipeline company can only appropriate real property after the
company is unable to agree on a conveyance or the terms of a conveyance.85
This issue may arise if the company has problems locating the owner of the
property, or there is a difference between the location of the easement before
and after filing the petition. The landowner may argue that the pipeline
company cannot show an inability to agree on the new location filed with
the petition. At the petition stage, however, it is typically fairly easy to show
an inability to agree. Pipeline companies usually exhaust all efforts to try
to settle with the property owner and avoid the costs of the condemnation
action. Counsel for the pipeline company can simply state that the company
will happily agree to pay the appraised value for the easement and terms
laid out in the petition if the issue is raised before the court.
82 Id. § 163.04(C).
83Id.
84Id. § 163.04(B).
85Id. § 163.04(D).
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[c] — Appropriation Proceedings.
[i] — Petition.
Once the good faith offer is presented along with the appraisal, the
petition to appropriate real property must be filed in the common pleas court
of the county in which the property is located. The petition must contain:
• A description of each parcel of land or interest or right therein
sought to be appropriated;
• A statement that the appropriation is necessary and for a public
use;
• A statement of the purpose of the appropriation;
• A statement of the estate or interest sought to be appropriated;
• The name and addresses of the owners;
• A statement showing the proper notice was provided; and
• A prayer for the appropriation.86
The pipeline company must provide sufficient detail of the easement
to permit a determination of the nature, extent and effect of the taking
and improvement.87 The landowner may argue that the petition does not
sufficiently describe the easement in order to determine what is being taken
in the condemnation action. This also goes to the inability to agree if the
easement and requested terms of the easement are different than what was
being negotiated with the landowner prior to the filing of the petition.
[ii] — Answer to Petition.
Any owner may file an answer to the petition within 28 days.88 The
answer must specifically deny the pipeline company’s right to appropriate,
the inability of the parties to agree, or the necessity for the appropriation and
must set forth specific facts relied on in support of the denial. Otherwise,
86Id. § 163.05
87Id. § 163.05.
88Id. §163.08.
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these issues shall be decided in favor of the pipeline company.89 Although
the statute requires the landowner to specifically deny these issues, the
court will likely give the benefit of the doubt to the landowner if the issue
of specificity is raised.
If the landowner does not deny the company’s right to appropriate, the
inability to agree or the necessity of the appropriation, then the court is
required to schedule a jury trial on compensation within 20 days from the
date the answer was filed.90
Similarly, if no answer is filed, the court is required to schedule a jury
trial on compensation within 20 days from the last date the answer could have
been filed.91 If there are numerous properties involved in the condemnation
action, the court’s docket may not allow for this expedited time frame despite
the statutory requirements.
[iii] — Hearing on Right to Appropriate
and Necessity.
If the owner denies the pipeline company’s right to make the
appropriation, the inability to agree, or the necessity of the appropriation,
the statute requires the court to set a hearing, “not less than five nor more
than fifteen days from the date the answer was filed.”92
If there is a delay in scheduling the necessity hearing, the right to a
hearing may be enforced through a writ of mandamus.93 The pipeline
company in Ohio River Pipeline v. Gutheil filed a motion to request a
“necessity hearing,” and the appellate court held the pipeline company
waived its right to an immediate necessity hearing by failing to pursue its
right through a mandamus action and proceeding instead with discovery
requests.94 This puts the pipeline company in the precarious position of filing
89Id.
90Id § 163.09.
91Id § 163.09(A).
92Id §163.09(B).
93Gutheil, 761 N.E.2d at 636.
94Id.
96
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an action directly against the judge who will ultimately decide whether the
company has the right to appropriate the easement.
The pipeline company generally has the burden of proof at the necessity
hearing, by a preponderance of the evidence. However, if the pipeline
company is a common carrier, evidence of the necessity for the appropriation
creates a rebuttable presumption of the necessity for the appropriation.95 The
pipeline company’s corporate resolution to construct the pipeline is prima
facie evidence that the pipeline is a public necessity. The burden is then on
the landowners to establish there was no such necessity.96
Ohio law has also held that a pipeline company transporting “natural gas,
petroleum, coal or its derivatives . . . is a common carrier.”97 Ohio common
law further defines a common carrier as “one that undertakes for hire or
reward to carry, or cause to be carried, goods for all persons indifferently
who may choose to employ him or it from one place to another.”98
[iv] — Mediation.
Either the owner or the pipeline company may request that the issue of
compensation or value be submitted to nonbinding mediation. The request
for mediation must be in writing and made within 10 business days after
the answer was filed.99 If the landowner requests mediation after the 10-day
period expires, the court will still likely allow mediation to proceed.
The court is required to appoint a mediator, and the mediation must be
conducted and concluded within 50 days after the owner filed an answer.100
This would also extend the date of the compensation trial, which was required
to be scheduled within 20 days of the answer if the company’s right to
appropriation, the inability to agree or the necessity of the appropriation is
not contested. The statute does not address this timing discrepancy.
95 Ohio Rev. Code § 163.09(B)(1)(b).
96Gutheil, 761 N.E.2d at 639.
97 Ohio Rev. Code § 1723.08.
98 United States Express Co. v. Backman, 28 Ohio St. 144, 150 (Ohio 1875).
99 Ohio Rev. Code § 163.051
100Id.
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Only a judge may extend the time for concluding the mediation and only
if an appraisal cannot be obtained.101 The pipeline company is required to
pay the cost of mediation.102
[v] — Consolidation.
The court, with the consent of the parties, may order two or more
cases to be consolidated and tried together.103 The rights of each owner to
compensation, damages or both must be separately determined by the jury.104
[vi] — Compensation Trial.
If the owner does not contest the pipeline company’s right to
appropriation, the inability to agree or the necessity of the appropriation, a
jury trial on compensation must be scheduled within 20 days from the date
the answer was filed.105 If no answer is filed, the jury trial on compensation
must be scheduled within 20 days of the answer due date. This could be
extended by a mediation, which must be scheduled and completed within
50 days of the date the answer was filed.
If the owner contests the right to appropriation, inability to agree or
the necessity of the appropriation, and the court determines these issues in
favor of the pipeline company, then a jury trial on compensation must be
scheduled “not less than sixty days” from the date of the journalization of that
determination.106 This is subject to the landowner’s right to an immediate
appeal discussed further below.107 This appears to be inconsistent with
the other expedited time frames put in place by the legislature, and allows
the landowner to further delay the proceedings if they contest the pipeline
company’s right to appropriate.
101 Id.
102Id.
103 Ohio Rev. Code § 163.09(E).
104Id.
105Id. § 163.09.
106Id. § 163.09(B)(2).
107Id. § 163.09(B)(3).
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[vii] — Compensation and Damages.
At trial, the jury assesses compensation for the property appropriated
and damages, if any, to the residue of the property.108 Neither party has the
burden of proof with respect to value.109 The jury first awards compensation
for the easement area.110 The weight of authority provides that the amount of
compensation is necessarily less than the value of the area in fee.111 Therefore,
where the owner retains substantial rights in property taken for an easement,
they are not entitled to the value of the land in fee simple.112 Ohio courts have
determined this value for the easement based upon the usual principle of a
willing seller and willing buyer dealing at arm’s length.113 As the shale play
has developed in Ohio, midstream companies have been setting the market
based upon the diameter and length of the pipeline across the landowner’s
property. If these prior transactions are arm’s length between a willing seller
and a willing buyer, then this evidence could be utilized in support of the
requested compensation by the landowner.
In addition to compensation for the easement area, the jury awards
damages, if any, sustained by the establishment of a pipeline easement across
the property. Damages are measured by the difference between the fair market
value of the whole premises immediately before and after the taking.114
The most common argument is the devaluation of the entire property based
upon a negative stigma from the pipeline being located on the property. An
experienced and resourceful appraiser can locate pipelines running through
residential and commercial areas to show what, if any, effect a pipeline has
on property values.
108Id. § 163.09.
109Id. § 163.09(F).
110Id. § 163.09.
111 Am. La. Pipe Line Co. v. Kennerk, 144 N.E.2d 660, 655 (Ohio Ct. App. 1957), citing
W.W. Allen, “Eminent Domain: Elements and Measure of Compensation for Oil or Gas
Pipeline Through Private Property,” 38 A.L.R.2d 792 (1954).
112Id. at 665, (citing Dodson v. City of Cincinnati, 34 Ohio St., 276 (Ohio 1887)).
113Id. at 660-665.
114Id. at 664.
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[d] — Possession.
The pipeline company does not get possession until it pays, or deposits
with the court, the amount of the award and any costs assessed.115 This is
why a delayed compensation trial can be so detrimental to the construction
planning of the pipeline company. Landowners know that delays can be very
costly, especially if the scheduled in-service date is approaching. Landowners
have an incentive to delay the proceedings in order to increase the settlement
value because settlement is the only way for the pipeline company to begin
construction prior to the compensation hearing.
[e] — Court Costs and Attorneys’ Fees.
The owner can recover reasonable attorneys’ fees, expenses and costs
if the court determines that there is no right to appropriation.116 If the case
goes to a jury trial on compensation, the owner can recover some portion of
their costs and expenses, including attorneys’ and appraisal fees, if the final
award of compensation is greater than 125 percent of the pipeline company’s
good faith offer or revised offer.117 The amount of costs and expenses the
owner can recover is limited to 25 percent of the difference between the jury’s
award and the last written offer made not less than 45 days before the trial.118
The risk of attorneys’ fees requires the pipeline company to focus on
the good faith offers made prior to filing the petition. It could prove very
costly to ignore valid damages arguments, especially if there are numerous
properties included in the appropriation proceedings. While the legislature
put limits on the amount of attorneys’ fees the landowners can recover, the
cumulative effect could significantly increase the overall payouts resulting
from the condemnation actions.
The pipeline company can make an offer of judgment. If the owner
refuses to accept the offer and the jury award does not exceed the offer, the
115 Ohio Rev. Code § 163.15.
116Id. § 163.09(G).
117Id. § 163.21.
118 Id.
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owner is required to pay all court costs accruing after the offer of judgment.119
The legislature only allows the recovery of court costs, however, which do
not include attorneys’ fees.
[f] — Appeal.
Finally, the legislature allowed for further delays through the landowners
right of appeal. If the owner denies the pipeline company’s right to
appropriate, inability to agree, or the necessity of the appropriation and the
court decides in favor of the pipeline company, the owner has a right to an
immediate appeal.120
Prior to the 2007 Amendments to Ohio’s appropriation statutes, Ohio
courts had held that the owner did not have a right to an immediate appeal
until after compensation was determined.121 The 2007 Amendments,
however, expressly included the landowner’s right to an immediate appeal,122
which gives the landowner the ability to further delay the proceedings.
The owner may request a stay on appeal, provided that the owner posts
a supersedeas bond in an amount the court determines.123
§ 3.04 Pennsylvania.
[1] — Pennsylvania Public Utilities Commission (PaPUC).
[a] — Statutory Authority.
Pennsylvania’s Eminent Domain statute authorizes “public utilities” to
utilize condemnation authority.124 Under Pennsylvania law a “public utility”
is defined, inter alia, as “any person or corporations now or hereafter owning
or operating in this Commonwealth equipment or facilities for . . . [p]roducing,
generating, transmitting, distributing or furnishing natural or artificial gas,
electricity, or steam for the production of light, heat, or power to or for the
119Id. § 163.16.
120Id. § 163.09(B)(3).
121Id.
122 2007 Ohio S.B. 7, 127th General Assembly (Ohio 2007).
123 Ohio Rev. Code § 163.19.
124 26 Pa. Const. Stat. § 204(b)(2)(i) (2014).
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public for compensation” or “[t]ransporting or conveying natural or artificial
gas, crude oil, gasoline, or petroleum products, materials for refrigeration,
or oxygen or nitrogen, or other fluid substance, by pipeline or conduit, for
the public for compensation.”125 “Any producer of natural gas not engaged
in distributing such gas directly to the public for compensation” is excluded
from the statutory definition of “public utility.”126 The operation of public
utilities including, but not limited to, the rates they are authorized to charge,
is regulated by the Pennsylvania Public Utilities Commission (“PaPUC”).127
A midstream pipeline company may be subject to such a determination under
the following test for whether it is offering services “for the public”:
Whether or not such person holds himself out, expressly or
impliedly, as engaged in the business of supplying his product or
service to the public, as a class, or to any limited portion of it, as
contradistinguished from holding himself out as serving or ready
to serve only particular individuals.128
In addition to precedent by appellate courts and the PaPUC, the PaPUC
has also adopted a policy statement as a guide to developers of utility
projects or services.129 Included in the policy statement is a list of three,
non-binding criteria that the Commission will evaluate in making a “public
utility” determination:
The Commission will consider the status of a utility project or
service based on the specific facts of the project or service and
will take into consideration the following criteria in formulating
its decision:
(1) The service being provided by the utility project is merely
incidental to nonutility business with the customers which creates
a nexus between the provider and customer.
125 66 Pa. Const. Stat. § 102 (2014).
126Id.
127Id. § 1301 et seq.
128 Waltman v. Pa. PUC, 596 A.2d 1221, 1223-24 (Pa. Commw. Ct. 1991).
129 52 Pa. Code § 69.1401(a) (2014).
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(2) The facility is designed and constructed only to serve a specific
group of individuals or entities, and others cannot feasibly be served
without a significant revision to the project.
(3) The service is provided to a single customer or to a defined,
privileged and limited group when the provider reserves its right
to select its customers by contractual arrangement so that no one
among the public, outside of the selected group, is privileged to
demand service, and resale of the service is prohibited, except to the
extent that a building or facility owner/operator that manages the
internal distribution system serving the building or facility supplies
electric power and related electric power services to occupants of
the building or facility. See 66 Pa.C.S. §§ 102 and 2803 (relating
to definitions).130
[b] — Laser Northeast Gathering Company.
A recent example of a midstream pipeline company navigating these
regulatory waters is the case of Laser Northeast Gathering Company, LLC
(hereinafter “Laser”), which decided to seek “public utility” status, obtained
such a finding on appeal to the PaPUC, and then — while on remand to
the ALJ — abruptly withdrew its application on September 8, 2011.131
Laser’s reasons for its change of course are not known, but the process of
its application and withdrawal highlights the difficulties companies face
in developing midstream pipelines amongst disjointed federal and state
regulations.
On December 23, 2009, Laser filed its Petition for A Declaratory
Order before FERC, seeking a determination that its proposed project in
Pennsylvania was a gathering system not subject to FERC jurisdiction. In
support of its Petition, Laser set forth the criteria that showed the project
to be consistent with a gathering system, including the length and diameter
of the system, its configuration, the location of compressors and processing
130Id. § 163.21(c); see Pa. Human Relations Comm’n v. Norristown Sch. Dist., 37 A.2d
671, 679 (Pa. 1977) (while not binding, announced the tentative intentions of the court).
131 Pa. Pub. Util. Comm’n, Docket 2010-215337 (2011).
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plants, the location of wells, the operating pressure and non-physical criteria.
In June 2011, FERC agreed with Laser and found the proposed system to be
a gathering system and not subject to its jurisdiction. Subsequently, FERC
denied a request for reconsideration and affirmed its decision that the project
proposed by Laser met the definition of “public utility.”
Proceeding at the same time, on January 19, 2010, Laser applied to the
PaPUC for a Certificate of Public Convenience to be designated a “public
utility” under state law, with the power of eminent domain. Several parties
protested, and others filed petitions to intervene. Two public input hearings
were held, as well as two evidentiary hearings. On September 10, 2010,
Laser and the remaining protestors filed a non-unanimous Joint Petition for
Settlement.
On December 1, 2010, the PaPUC issued the Recommendation Decision
of the Administrative Law Judge (ALJ), which disapproved the settlement
and denied Laser’s application for “public utility” status. On June 14, 2011,
the PaPUC entered its order, disagreeing with the ALJ’s reasoning and
recommendation. Specifically, the PaPUC disagreed with the ALJ’s finding
that Laser’s proposed project was not “for the public” such that it could not
be a public utility. Again, on August 25, 2011, the PaPUC offered further
guidance in denying a request for reconsideration of its June 14, 2011 order.
In particular, the PaPUC noted:
[T]he absence of a finding of an intent to serve all producers that
request service would be dispositive that an entity is not a public
utility. Similarly, a gatherer that uses contracts to determine which
producers are privileged to demand service would likewise not be
a public utility. A seminal tenet of public utility status is holding
oneself out as offering service to “the public,” and both of the
circumstances set forth . . . remove an entity from providing service
to “the public.”132
On September 8, 2011, Laser announced that it was abandoning its bid.
As part of its announcement, Laser stated it no longer would be serving any
132 Order, at 18 (Aug. 25, 2011).
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and potential customers or expanding its services to meet the demand of the
public, as a public utility would. In addition, Laser stated it would be using
contracts to select and serve a limited customer base.
[c] — Peregrine Keystone.
Peregrine Keystone Gas Pipeline, LLC (hereinafter “Peregrine”), like
Laser, proposed to construct a gathering system and provide midstream and
gathering services in Pennsylvania initially to serve an affiliated producer.
It filed an application with the PaPUC seeking “public utility” status under
Pennsylvania law, which, if granted, would have provided Peregrine with the
power of eminent domain.133 On May 23, 2012, an administrative law judge
(ALJ) issued a thorough 100-plus page Recommended Decision applying
Laser and other precedent to the facts in Peregrine. The ALJ recommended
that Peregrine’s application to be a “public utility” be denied.
The ALJ’s Recommended Decision was consistent with PaPUC decisions
in Laser holding that natural gas gathering services can meet the required
threshold to be a “public utility.” However, the Recommended Decision
recognized that a greater level of factual detail and argument had been
provided in the Peregrine proceeding; in fact, a level of detail the PaPUC
sought to have developed and established in the Laser proceeding, on remand,
before Laser was permitted to withdraw its application.
One of the Laser-established criteria a gathering company must satisfy
in order to meet the definition of “public utility” is that it will serve any and
all requesting producer customers. In the Recommended Decision, the ALJ
drew the important distinction between the company’s intentions to meet this
criterion versus whether it will do so in reality. Since Peregrine had reserved
the right to negotiate essentially every key term in the agreement to be used
for service between Peregrine and the producer customer, the Recommended
Decision held that Peregrine was reserving the right to pick and choose its
customers through agreement negotiations.
Pennsylvania law also requires that tariffs be clear, unambiguous and
contain sufficient detail about the services offered and their terms and rates.
133 Pa. Pub. Util. Comm’n, Docket No. 2010-2200201 (2012).
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The ALJ found that Peregrine’s tariff failed to meet this standard. Since
Peregrine had reserved the right to negotiate all of the terms of its services,
the Recommended Decision opined that Peregrine’s tariff must contain the
basic and enforceable terms of service in order to determine whether it was
engaging in discriminatory conduct. Peregrine’s tariff was inadequate for
public utility service.
The ALJ determined that, if Peregrine’s application were granted,
Peregrine would be granted the power of eminent domain. Furthermore,
Peregrine’s siting of its facilities (including compression and treatment
facilities) would be exempt from local ordinances. However, the Recommended
Decision opined that, while Peregrine’s application should be denied, in the
event any certificate is later granted by the PaPUC, the authority granted in
any certificate should not extend to production facilities (a particular concern,
generally, and given Peregrine’s initial proposal was to serve an affiliated
producer.) Later in the Recommended Decision, Peregrine was directed to
include in any later tariff submission (assuming it is granted a certificate)
the condition that it will not be permitted to use eminent domain for the
purpose of allowing it to construct facilities to serve an affiliated producer.
With Pennsylvania’s passage of Act 127, which extended the PaPUC’s
safety inspection and enforcement jurisdiction over non-public utility, onshore
gathering pipelines, the Recommended Decision opined that Peregrine
need not be granted public utility status in order for the Commonwealth to
adequately oversee safety issues. The ALJ concluded by stating that “[t]he
parties are correct that Peregrine has failed to provide convincing evidence
that the present system of private, unregulated gathering companies is in
need of regulation. The other gathering companies, however, have provided
convincing testimony that the system in place now is thriving, and that
regulation would be harmful to it in terms of both efficiency and cost.”134
The end result in Peregrine was reminiscent of the beloved Yogi Berra’s
“déjà vu all over again” quote. Peregrine sought to withdraw its application
before the PaPUC and on September 13, 2012, its request was granted and
the Recommended Decision was withdrawn.
134 Docket No. 2010-2200201, Recommended Decision, p. 97.
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[d] — Pennsylvania Business Corporation Law.
Pennsylvania’s Business Corporation Act grants “public utility
corporations” the right to take, occupy and condemn property” for “[t]he
production, generation, manufacture, transmission, storage, distribution or
furnishing of natural or artificial gas, electricity, steam, air conditioning or
refrigerating service or any combination thereof to or for the public.”135
“Public utility corporations are defined as “[a]ny domestic or foreign
corporation for profit that (1) is subject to regulation as a public utility by
the Pennsylvania Public Utility Commission or an officer or agency of the
United States; or (2) was subject to such regulation on December 31, 1980,
or would have been so subject if it had been then existing.”136
In National Fuel Gas Supply v. Kovalchick Corp.,137 a pipeline company
engaged in the gathering and interstate transportation of natural gas sought
to condemn a right of way for gathering lines which were exempt from
FERC regulation. Ultimately, a Pennsylvania common pleas court allowed
the company to condemn the right of way finding that the company was a
“public utility corporation associated” with interstate commerce (although
its gathering lines were not subject to FERC or PaPUC regulation) which
was authorized to condemn a right of way under Pennsylvania’s Business
Corporation Act.
In late 2013 and early 2014, Sunoco filed several petitions in Washington
(PA) common pleas court claiming authority as a “public utility corporation”
to exercise eminent domain authority under the Pennsylvania Business
Corporation Law because it is “FERC regulated.” Defendant property owners
opposed the petitions claiming that a certificate of public convenience and
necessity from either the PaPUC or FERC was necessary for Sunoco to
proceed. The petitions were consolidated and appeared to set the stage for
another decision determining whether the Pennsylvania Business Corporation
Law can be relied upon as a source of eminent domain authority when
constructing pipelines. However, in late May, 2014, the Washington (PA)
135 15 Pa. Cons. Stat. § 1511 (2014).
136Id. § 1103.
137 Nat’l Fuel Gas Supply v. Kovalchick Corp., 74 D&C 4th 22 (Pa. Ct. Comm. Pl. 2005).
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common pleas court announced that it would stay any decision on the issue
because it appeared the cases had been settled.
[2] — Eminent Domain Procedures.
[a] — Right of Entry.
A public utility has the right to enter property before it is condemned
to perform a survey. Specifically, Section 309 of Pennsylvania’s Eminent
Domain Code provides that “[p]rior to the filing of the declaration of taking,
the condemnor or its employees or agents, shall have the right to enter upon
any land or improvement in order to make studies, surveys, tests, soundings
and appraisals.”138 Pennsylvania law requires that the condemnor notify “the
owner of the land or the party in whose name the property is assessed” 10
days prior to entry on the property.139 The law also requires the condemnor to
compensate the landowner for any actual damages resulting from the access
and the performance of the survey or related studies.140 If landowners are
absent from the property or are unknown, the condemnor may exercise its
survey/study/test rights without first petitioning the court for an immediate
right of entry. If the landowners refuse to grant access after the 10 days’ notice
has expired, a Verified Petition for Immediate Right of Entry can be filed in
the common pleas court in the county where the property is located.141
[b] — Condemnation.
Easement for natural gas pipelines can be obtained through
eminent domain under federal or Pennsylvania law. The federal and state
condemnation authority extends to a right-of-way sufficient in size for the
construction, operation and maintenance of the pipeline, as well any land
necessary for equipment required to operate the pipeline. This includes
access roads and work sites necessary for the construction and operation of
the pipeline.
138 26 Pa. Cons. Stat. § 309(a) (2014).
139Id. § 309(b).
140Id. § 309(c)(1).
141Id. § 309.
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If the pipeline is regulated by the FERC, then the Natural Gas Act grants
the power of eminent domain. Additionally, under Pennsylvania law public
utility corporations are authorized to obtain an easement through eminent
domain under the Quick Take Statute, 15 Pa. Cons. Stat. § 1511.142 Section
1511 grants condemnation authority to certain public utility corporations and
provides that these corporations can use this section in lieu of the eminent
domain code for the purposes of condemning an easement only.143
[c] — Pennsylvania Condemnation Requirements and Procedures.
i. A petition is filed with the court requesting that it approve the
bond and setting forth reasons for the condemnation, describing the
property being condemned, attaching the resolution of the board
and attaching the condemnation plat.144
ii. If the landowner accepts the bond, the only issue remaining is
compensation. The landowner can, however, object to the issuance
of the bond. The landowner may argue, for example, that the plat is
incorrect, that the bond is inadequate or that the bonding company
is not approved. It is unusual for the court to deny the petition, but
it is possible for the court to grant the landowner a continuance to
obtain evidence to support the landowner’s position.
iii. Under Section 1511, the right to possession passes immediately
upon the court approving the petition and allowing the condemnor
to file the bond.145
§ 3.05. West Virginia.
[1] — West Virginia’s Appropriation Statute.
West Virginia’s appropriation statute grants the right of eminent domain
to corporations for the public use of constructing, maintaining, and operating
142 15 Pa. Cons. Stat. § 1511(g) (2014) (providing a supplement to, and in certain instances a
substitute for, the “classic” Pennsylvania condemnation procedures set forth in the “Eminent
Domain Code” at 26 Pa. Cons. Stat. § 2-391).
143 Section 1511 does not apply when condemning for a fee.
144Id.
145Id.
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pipelines for transporting “petroleum oil, natural gas, manufactured gas, and
all mixtures and combinations thereof, by means of pipes, pressure stations
or otherwise.”146
Midstream pipelines in West Virginia would fall into one of two
categories, “gathering” or “intrastate” lines. “Gathering facilities” include all
pipelines and related facilities used to collect the gas production of one (1) or
more wells for the purpose of moving such production from the well(s) into
the facilities of an interstate pipeline, a utility, or an intrastate pipeline.147 The
West Virginia Public Service Commission (PSC) transportation regulations
apply to “the transportation of natural gas within the State of West Virginia,
but expressly exempt gathering facilities.148
The West Virginia PSC does exercise jurisdiction over “intrastate
pipelines” pursuant to W. Va. Code § 24-3-3a, which declares that intrastate
pipelines are “common carriers.” W. Va. Code § 24-3-3a(a)(1) defines an
intrastate pipeline as
(i) any utility or (ii) any other person, firm or corporation engaged in
natural gas transportation in intrastate commerce to or for another
person, firm or corporation for compensation.
The question remains whether gathering lines or non-utility intrastate
lines would qualify under West Virginia’s “public use” standard for eminent
domain.
[2] — Case Law Interpreting the Appropriation Statutes.
The West Virginia Supreme Court of Appeals has held that not all of
the enumerated services, such as transportation of gas, renders the service
a “public service,” and in turn, deems the provider of such service as a
“public utility.” The test as to whether an entity is providing a public service
is whether the entity has held itself out (either expressly or implicitly) “to
146 W. Va. Code §§ 54-1-1 & 54-1-2.
147 W. Va. C.S.R. § 150-16-1.5j.
148Id.
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supply its product or services to the public as a class or any part thereof as
distinguished from the serving of only particular individuals . . . ”149
The West Virginia Supreme Court of Appeals has further held that
the law confers certain privileges and imposes certain duties upon a public
utility which are distinct from those conferred or imposed by law upon a
nonutility.150 The paramount duty of a public utility is to serve all the public
within its utility service territory; a nonutility is subject to no such duty.151
A public utility also enjoys protection from competition within its field, is
entitled to a fair return upon its investment used and useful in its public service
business, and possesses the right of eminent domain. The West Virginia
Supreme Court of Appeals has held that no such advantages are enjoyed by
a nonutility.152 Therefore, it is clear that a non-utility does not possess the
right of eminent domain.
Such holdings regarding non-utilities are consistent throughout West
Virginia’s jurisprudence. In Charleston Natural Gas Co. v. Lowe, the court
held that supplying a city, town and its inhabitants with natural gas is a “public
use” for which a company may take private property.153 In determining
what constitutes “public use,” the court looked at “the interest the public will
have in the operation of the proposed pipe line.”154 The pipeline at issue
transported natural gas from the company’s well in Boone County to serve
customers in Charleston. This case shows the difficulty in utilizing eminent
domain in West Virginia as the trial court first denied the right of eminent
domain to a pipeline company supplying natural gas to Charleston. The West
Virginia Supreme Court of Appeals had to reverse the decision, holding that
it did constitute a “public use.”155
149 Wilhite v. Pub. Serv. Comm’n, 150 W. Va. 747, 149 S.E.2d 273 (W. Va. 1966); see also
United Fuel Gas Co. v. Battle, 167 S.E.2d 890 (W. Va. 1969), cert. denied, 396 U.S. 116
(1969); Boggs v. Pub. Serv. Comm’n of W. Va., 174 S.E.2d 331 (W. Va. 1970).
150 United Fuel Gas Co., 167 S.E.2d at 906.
151Id.
152Id.
153 Charleston Natural Gas Co. v. Lowe, 44 S.E. 410, 410-11 (W. Va. 1901).
154Id.
155Id.
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In Carnegie Natural Gas v. Swiger, the court recognized the right
of eminent domain for a pipeline used to transport natural gas out of the
state because a small portion of the gas along the pipeline was used by the
citizens of West Virginia.156 The court in Carnegie Natural Gas held that the
legislature by general law conferred upon pipe line companies organized for
transporting oil and natural gas, the right of eminent domain, and has thereby
necessarily imposed upon them, as public service corporations, the right and
duty of performing a public service.157 Pipeline companies organized for
transporting gas must serve the people with gas, under reasonable and proper
regulations, along the entire line traversed, and for reasonable rates fixed by
themselves, or by statute, or by contracts or ordinances of municipalities.158
The court in Carnegie Natural Gas Company relied on the fact that “the
rights of the people are thus protected in nearly every case where the public
is served by public service corporations, furnishing water, gas, electricity,
or transportation.”159 When the court looked at necessity, it again relied on
the fact that Carnegie was a “pipe line company to transport or serve the
public with gas.”160 The court concluded that because Carnegie was serving
the people of West Virginia with gas, and all who apply, then it could not be
denied the right of eminent domain.161
In Pittsburgh & W. Va. Gas Co. v. Cutright, the gas company was a public
service corporation organized for the purpose of transporting and serving
the public with natural gas.162 In addition to serving the public with natural
gas, the pipeline company would first run the gas through a condensing or
gasoline plant to extract the gasoline, water and other liquid substances before
admitting the natural gas into its service pipelines.163 The court recognized
that the gas company’s main business was not the production of gasoline and
156 Carnegie Natural Gas Co. v. Swiger, 97 S.E. 686, 686-687 (W. Va. 1913).
157Id.
158Id.
159Id.
160Id.
161 Id.
162 Pittsburgh & W. Va. Gas Co. v. Cutright, 83 W. Va. 42, 42 (W. Va. 1918).
163Id.
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that the lines constituted a part of the company’s main line through which
it served the public.164 The court then held that a company organized to
transport and serve the public with natural gas may take by condemnation
for its pipe lines land necessary for the proper and efficient conduct of its
business as a public carrier.165
The case law addressing “public use,” as set forth in West Virginia’s
appropriation statute, has only applied eminent domain authority to pipelines
serving the public with natural gas, which is clearly distinguishable from the
midstream pipelines at issue.
164Id.
165Id.
113