Pipeline Easements in New York

As natural gas exploration and production has increased, so too has the need to overhaul and expand the natural gas transportation system. Currently, there plans are under way pipe-in shale natural gas being extracted in neighboring Pennsylvania.

In late-November, Kinder-Morgan, the Northeast Energy Direct (“NED”) Pipeline operator, filed a certificate application with the Federal Energy Regulatory Commission (“FERC”) in int’s effort to begin construction at the beginning of 2017, and make the pipeline operational by the end of 2018. While Kinder Morgan says most of the pipeline would be co-located with existing utility lines, many of these corridors would need to be widened, resulting in impacts to private property.

In the case of the NED, scores of privately-owned parcels will have to be crossed along the pipelines route through New York State. In order to facilitate construction of the pipeline, the operators behind the NED and Constitution Pipelines will negotiate easements with the owners of these parcels.

The relationship between public utilities and negotiated easements is nothing new. Easements may be granted to private businesses, such as a public utility company, to cross a land parcel in order to provide common services such as sewer access or electricity. Natural gas pipeline easements present a different situation. Setting aside for the moment the issue of whether the pipelines are a good thing economically and environmentally for the state, affected landowners should tread carefully.

Unlike a public utility easement, a natural gas pipeline moves product for profit across land rather than providing a direct benefit to the land. At peak capacity, millions of dollars worth of natural gas will be moving through these pipelines every day. Are affected landowners receiving fair compensation?

Traditionally in these situations, landowners receive “market value” of the land affected by an easement, which often includes money for reduction in agriculture output or other productive use of the land.

While this system makes sense under the common public utility easement paradigm, how does this process apply when the landowner’s property is the “transportation vehicle” for a commodity? How does one calculate “fair market value” when millions of dollars worth of product are flowing across privately-held land? Is a one-time payment for an easement fair compensation?

The term eminent domain should raise a red flag with any landowner along a pipeline’s proposed route. Eminent domain means “forced taking” though litigation. Under the doctrine of eminent domain, private property may be seized so long as the seizure is for a public purpose, and fair compensation is provided.

The concept of “public purpose” is liberally construed under the law. So, a seizure of property for a pipeline could be for a public purpose even when the direct benefactor is a private company. “Fair compensation” typically means that the taking party must provide market rate for the seized or affected land. In such cases, the focus is on production loss to the landowner rather than benefit provided to the operator.

Forty-two states have enacted new legislation or passed ballot measures since 2006 concerning problems with eminent domain as a taking of private property. Compensation to landowners in eminent domain proceedings has been notoriously small in amount. However, five states have recently enacted legislation increasing the compensation amount.

So, if the easements are coming, for what terms should New York landowners be on the lookout?

When landowners are approached about an easement they are presented with a standard agreement. These agreements will not refer to any individualized needs or considerations. But they do contain many important legal terms.

Some examples of common terms:

-“Temporary periods” are often mentioned. How long is temporary?

-Many agreements give an operator the right to conduct several activities (reconstructing, modifying etc.) at any time. However, the Landowner does not retain the right to renegotiate the type of access allowed. These activities could cause future disturbances to the Landowner’s use and enjoyment of their land. Is the landowner left without any recourse?

-Some agreements allow for the installation of “any appurtenant facilities.” What are these appurtenant facilities? Are they going to impact the Landowner’s use and enjoyment of the land?

While Landowners may feel pressure to sign, that does not mean that they must be left with a bad deal. Any proposed agreement should be reviewed with the help of experienced advisor’s. A landowner should always carefully consider the circumstances of his land and, importantly the future of his land.

Author: David Ganje. David Ganje of Ganje Law Offices practices in the area of natural resources, environmental and commercial law in New York.