Property Rights versus Public Good: EnergyBiz Insider, 3/5/07

By Ken Silverstein

Proposed natural gas pipelines are fueling a bitter debate over the proper balance between the "public good" and "property rights." The dispute pits landowners against pipeline companies as it relates to the laws that permit the confiscation of land for the purposes of building what is believed to be vital infrastructure.

The feud has spilled over into several communities around the United States. The issue is now on the agenda in both the courts and state legislatures. In all cases, the common solution is for the two sides to work out an amicable agreement - one that will require companies to use circuitous routes that deviate from the original plans.

Without the ability to exercise their right of "eminent domain," developers say they won't do business in a jurisdiction and the people will therefore suffer. Property owners counter that many of the projects are unnecessarily intrusive and that the laws don't give pipeline companies the right to profit at their expense - a proposition that oftentimes gives them inadequate compensation for their troubles.

"Eminent domain exists because services such as electricity, natural gas, sewer and water are considered necessities," says Mike Enoch, general manager of the Chester County Natural Gas Authority in South Carolina. "They are essential services upon which lives and livelihoods depend. The purpose of eminent domain is to prevent any property owner ... from denying an entire community adequate service."

The battle in South Carolina is over a 42-mile pipeline. The pipeline's owner says that the deal would save gas authorities $60 million over 30 years and ensure that adequate capacity exists down the road. Many residents who live along the proposed route are taking the developer, Patriots Energy Group, to court. They argue that not only is the demand for their land invasive but that it is also excessive and that current providers can meet the projected demand for power.

In that state, the law forbids government from allowing private entities to exercise their rights under eminent domain laws unless it would eliminate eyesores or accrue to the benefit of entire communities. It comes atop a 2005 U.S. Supreme Court ruling involving a Connecticut case called Kelo versus City of New London in which the high court decided that government could condemn private property for the public good and even if it involved private development such as hotels and shopping centers.

That diverged from previous interpretations of the law, which said that eminent domain rights could be exercised if such things as roads, schools and hospitals were built. In response to that 2005 Supreme Court 5-4 decision, 34 states have passed laws to try and limit those rights. In Wyoming, for example, citizens have filed a ballot initiative that would protect their private property rights when it involves oil and gas development.

"If our federal constitutional right to property is not going to be protected by the Supreme Court, then we need to ensure that every state has solid state constitutional rights that ensure people's right to property," says Jenifer Zeigler, a legislative affairs attorney for a Washington, D.C.-based property rights group called Institute for Justice.

People Power
Beyond the ballot initiative, Wyoming is considering bills that some lawmakers say will level the playing field between developers and landowners. The measure would ensure that property owners receive better compensation as well as get more money in the event that pipeline development would force them to relocate.

Other bills would go further and prohibit the condemnation of private property unless a project would be used for a public purpose. The transference of private property to other private interest would be forbidden. All proposals, meanwhile, want the disparate sides to negotiate so as to ensure the public would benefit without trampling over landowners.

A recent poll taken in Wyoming says that 77 percent of registered voters there believe that private developers have the upper hand when it comes to negotiating deals with property owners. Pipeline owners say that they favor good faith talks but add that unless they are able to build infrastructure at reasonable costs, they would simply not build.

According to the Interstate Natural Gas Association of America, the country needs to invest $61 billion in its natural gas pipeline infrastructure. It also says that the industry must build 45,000 miles of pipeline in North America and particularly in California and the Northeast. Further delays, it says, will only serve to drive up gas rates.

The permitting process has always been an onerous undertaking. Potential routes are chosen based on construction costs - determined in part by terrain, environmental factors and projected population growth. Safety has also become paramount, particularly since the events of 9/11. Toward that end, developers must demonstrate that they will work with communities and add technology to bolster security - things that don't necessarily generate a return on investment.

After environmental impact reviews are undertaken, all landowners along the proposed route must be notified. If they don't give their consent, then state regulators do have the right to grant eminent domain to the energy companies. The Federal Energy Regulatory Commission, meanwhile, has the authority to step in and break ties if it considers projects vital to the public concern. However, about 90 percent of all cases do not require that kind of federal involvement and are negotiated successfully.

While the degree of permissiveness varies, overall there must not be any significant effect on either the natural habitat or the landowners who lease their rights-of-way. Typically after months of infighting, the common solution is to re-route the pipeline to accommodate all concerns.

"Rarely is it smooth sailing," says Greg Lamberson, manager of International Construction Consulting, based in Tulsa.

Developing pipelines is about building coalitions. The twin goals are to meet the expected future demand for energy without running roughshod over property owners. Policymakers around the country are trying to determine the proper balance -- decisions that will assuredly place personal freedom and energy resilience at odds with one another.

EnergyBiz Insider: http://www.energycentral.com/centers/energybiz