Common Carrier Pipeline Status After Amended TX RR Comm. Rule 3.70.

Following its analysis of public comments from many state citizens, elected officials and companies, the Texas Railroad Commission recently announced that it has amended Rule 3.70 (16 T.A.C. Sec. 3.70), which pertains to permitting pipelines. There has been quite a bit of interest in this particular rule-making process, given the increasing attention on the condemnation power – or more colloquially, eminent domain power – possessed by pipelines granted “common carrier” status. First, a quick run-through on an important recent case, Texas Rice Partners Ltd. v. Denbury Green Pipeline, 343 S.W.3d 192 (Tex. 2012) – the revised opinion of which is available here – would help to establish some context.

The Denbury Decision

Denbury Green Pipeline was a company that wished to construct a pipeline, from a Mississippi gas reserve that it owns, to Texas wells for which said gas would facilitate operations. On the Texas Railroad Commission’s pipeline permit application (Form T-4), there is a section in which the applicant denotes whether the pipeline will be operated as a “common carrier” or a “private line.” In this instance, Denbury’s agent checked the “common carrier” box. Days later, in April of 2008, the permit application was granted, with no public appraisal or notice. Eventually, Denbury Green made preparations to survey land along the proposed pipeline route in advance of exercising condemnation power for a pipeline right-of-way. One of the parties who partially owned the subject land was Texas Rice Land Partners (“TRLP”), and they barred Denbury Green from conducting survey operations. Denbury Green sought an injunction for access to survey, and the trial court found in their favor given their status as a common carrier pipeline. This imbued Denbury Green with the right to enter TRLP’s land to survey, free of any interference or interruption.

On appeal, the Texas Supreme Court clarified some important points. First, common carrier status is granted for pipelines transporting CO2 to or for the public, and not for pipelines that are in an exclusive, closed system used by an operator for increased efficacy of their own operations. Secondly, while it is accurate that common carrier pipeline companies do have eminent domain / condemnation power, this power is greatly scrutinized – namely, the person or entity’s property taken must be given adequate compensation, and the property taken can not be for private use (true under both the Federal and Texas Constitutions).

Applying this to Denbury’s facts, the Texas Supreme Court held that Denbury Green did not establish common carrier status as a matter of law, principally due to Denbury’s failure to sufficiently demonstrate that the pipeline would strictly be for public use and would in no way be self-serving (in fact, Denbury’s own website suggested the pipeline at issue would not be for public use). However, the important takeaway – especially for pipeline companies – is that the mere checking off of a box on a form – the TX RRC’s Form T-4 in this instance – is in no way dispositive of the issue of whether a pipeline qualifies for common carrier status and can subsequently start seizing lands under eminent domain authority. The opinion ends by stating that “[w]hile neighboring states impose fewer restrictions on the level of public use required for such takings, meaning companies may seize land to build pipelines for their exclusive use, the Texas Legislature enacted a regime more protective of landowners.” This would pretty convincingly suggest that companies had better be prepared to reasonably prove that there is a current customer, or will be a future customer, and isn’t just for the company’s exclusive use.

Going Forward in Light of Denbury and Amended Texas Railroad Commission Rule 3.70

The amendment of TX RRC Rule 3.70 can be seen as a sort of administrative response to the Denbury opinion – however, it would appear that the only decision is to effectively punt on the issue. In a November memorandum issued by TX RRC’s general counsel, the RRC specifically highlights that a the T-4 permit only allows pipeline operation, and that it has absolutely no bearing in deciding or granting the power of eminent domain or condemnation. Rather, any disputes pertaining to these eminent power issues are matters for the courthouse and not for the agency itself. The RRC also requires that any such T-4 permit application is renewed on an annual basis, submitted concurrently with supporting evidence or documentation of the pipeline’s status as selected on said application.

This Rule doesn’t seem to do much to help either the potentially aggrieved landowner or the interested pipeline company. Going forward, it would appear that future disputes will just need to be settled by the Texas courts, which seem to be more inclined to protect the interests of the Texas landowner rather than an oil or pipeline company.

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