Steffy: Property rights versus pipelines

As if the Keystone XL pipeline needed more controversy, it’s now embroiled in a legal wrangle that could call into question the land rights of all pipelines in the state.

Already a political punching bag nationally in this election season, TransCanada Corp.’s  pipeline has become a legal football as well, caught up in a series of arcane rulings that have upended the decades-old process for how energy companies in Texas seize land for pipelines. It’s a case that pits Texas’ long-held belief in the sanctity of private property against its favorite industry.

The story actually begins several years ago, with a different pipeline company that sought access to land owned by Texas Rice Land Partners and others near Beaumont for unrelated project. The farmers refused to allow a survey crew on the land, and that company sued. It prevailed, but the farmers appealed and the case wound up before the Texas Supreme Court. In a ruling in March, the high court cast doubt on how all pipeline companies acquire right of way.

Under the current rules, administered by the Railroad Commission, pipeline operators seeking access to private land through eminent domain have to show they are a “common carrier,” meaning they transport natural resources in the public’s interest. To become a common carrier, though, all a pipeline company does is tell the commission that it is one.

“The Railroad Commission had a process that involved little more than filling out a form,” said Kent Sullivan, who’s not involved in the case and who heads the energy litigation team for Sutherland Asbill & Brennan in Houston. “It was really a process that the court found inherently defective.”
Landowners have no recourse for challenging the common carrier designation under the commission’s rules. In its decision, the Supreme Court found the process unfair and ruled that landowners can use the courts to question common carrier status.

As a result, a process streamlined for the benefit of oil companies has become skewed in favor of landowners.
“The Supreme Court opinion is turning everything on its head,” said Sullivan, a former trial court and appellate judge. “There’s been a shift in power to the landowners.”

In court documents, the Texas Oil and Gas Association warned of “a devastating impact on an industry that serves as the economic engine for the state’s economy.”
Since the high court’s decision, the pipeline industry has been in limbo, waiting for lower courts to interpret the Supreme Court’s decision. Into that cloud of uncertain came the Keystone project. TransCanada, pushed ahead with plans to build the southern part of the pipeline from Cushing, Okla., to Nederland, cutting across Rice Land Partners’ farmland.
Earlier this year, the farmers filed another suit, this time questioning TransCanada’s common carrier status. The judge, in a legal dance that tip-toed around the Supreme Court’s decision, allowed construction to proceed but said Rice Land can challenge the common carrier issue in a separate case.
Rice Land’s attorney, Terry Wood, told me his clients haven’t decided what they will do. He maintains that under the Supreme Court’s ruling, companies shouldn’t be able to proceed with seizing land until the court has determined if they’re a  common carrier.

“Our position is that they shouldn’t have possession,” he said.

Despite the farmers’ challenge, it’s hard to argue that the Keystone project isn’t in the public’s interest. The southern section of the pipeline is moving Midwestern crude to Gulf Coast refineries, a process that could help lower gasoline prices.
“It’s plain as day that we’re common carriers,” TransCanada spokesman David Dodson said. “We’re totally confident that we meet the statute.”
But if Rice Land files another case and wins, TransCanada might have to remove part of the pipeline — an expensive and time-consuming set back. More important, the legal challenges mean no pipeline company can count on acquiring right of way without a lengthy court fight.

Count on the issue coming up in the next legislative session. Pipeline companies want the matter settled, and so do property rights advocates. The best way to avoid lengthy legal delays while still giving landowners a voice is to charge an agency, such as the Railroad Commission, with administering a review process that solicits inputs from both sides.
In the meantime, the Keystone project finds itself in yet another controversy, one that goes far beyond its own pipeline.

Loren Steffy, loren.steffy@chron.com, is the Chronicle’s business columnist. His commentary appears Sundays, Wednesdays and Fridays. Follow him online at blog.chron.com/lorensteffy, www.facebook.com/LorenSteffypage and twitter.com/lsteffy.