A recent ruling from the Texas Supreme Court set a "low bar" for pipeline developers seeking "common carrier" status to establish eminent domain authority, but it left for another day a "thornier question" relating to such status and affiliate transport contracts, lawyers reviewing the case said.
"The takeaway is that while establishing status as a 'common carrier' on the part of a pipeline company does require submission of some evidence that businesses other than the builder of the pipeline will use it to transport gas they own, this threshold is not high," Thompson & Knight (T&K) lawyers wrote in a Client Alert following the Jan. 6 decision.
In Denbury Green Pipeline-Texas LLC v. Texas Rice Land Partners Ltd. [15-0225, 2017 WL 65470], aka "Texas Rice Land Partners II," the court articulated a "reasonable probability" test that T&K attorneys wrote "...appears to set a low bar for pipeline companies to establish the right to use eminent domain to acquire easements to construct pipelines...
"What matters, according to the Texas Supreme Court, is whether the pipeline will, with reasonable probability, serve a public purpose at some point after its construction. The court held that the evidence Denbury provided -- particularly the evidence of contracts with unaffiliated entities -- more than met Denbury's burden."
To support its argument, Denbury had submitted a contract with one company that would transport its carbon dioxide (CO2) to Denbury, which would then own the CO2. This wasn't enough to show public use, the court said. But this contract along with another to transport CO2 that would not be owned by Denbury, as well as evidence of potential nearby customers for the pipeline was enough to support an earlier court ruling in favor of "common carrier" status, the Texas Supreme Court found.
Still, according to T&K attorneys, questions about "common carrier" and pipeline affiliate contracts remain. It was not addressed whether one or more contracts between a pipeline claiming "common carrier" status and its affiliates to transport gas owned by the affiliates would be enough to establish "probability of public purpose," they said.
The original case dates back several years and began when Texas Rice denied Denbury access to its land for construction of a CO2 pipeline. More than two years ago, the Railroad Commission of Texas amended its rules relating to the "common carrier" designation. Proponents of rule changes had cited the Denbury case.