The November 2011 issue of the Energy Newsletter addressed the case of Texas Rice Land Partners, Ltd. v. Denbury Green Pipeline-Texas, LLC, in an article titled Texas Supreme Court Ruling May Slow the Installation of Certain Pipelines. As explained in that article, the Denbury Court set out the criteria that a private pipeline company must meet in order to be afforded "common carrier" status. A common carrier designation is critical because, if it is established, the pipeline operator is essentially granted the power of eminent domain to route its pipeline across private property. In reaction to Denbury, the Texas Railroad Commission (which has regulatory oversight of the oil & gas industry in Texas) has recently proposed rule changes related to common carrier permit requests. While the proposed rule has drawn attention and criticism from both sides of the debate (pipeline operators who say that it goes too far and landowners who say it does not go far enough), the proposed rule is fairly modest in scope. Importantly, the proposed rule does not appear to challenge the essential point of Denbury: common carrier status, if challenged by a landowner, is ultimately an issue for the courts and not the Railroad Commission.
In Denbury, the defendant owned a naturally occurring CO2 reserve and sought to build a pipeline to transport the CO2 to various Texas production fields. Denbury applied to the Railroad Commission for permission to operate the line. Denbury completed the Commission's standard one-page permit application—known as a Form T-4—and indicated that the pipeline would be operated as a common line, by checking a box on the form. Shortly thereafter, the Commission granted the T-4 permit and classified the proposed line as a common carrier pipeline, thereby conferring eminent domain powers on Denbury. Denbury began surveying the line, including on land owned by Texas Rice Land Partners, which refused Denbury permission onto its land and sought an injunction barring Denbury from entering its property. The matter eventually came to the Texas Supreme Court.
The Supreme Court recognized that private pipeline companies have the power of eminent domain in Texas where the pipeline is available for "public use", meaning others besides the pipeline owner will be entitled to use the line for transportation. But the Denbury court held that the mere granting of a common carrier permit by the Railroad Commission does not conclusively establish that the line meets the public use requirement. Rather, to qualify as a common carrier, the Court held that a "reasonable probability must exist, at or before the time common-carrier status is challenged, that the pipeline will serve the public by transporting [CO2] for customers who will either retain ownership of their [CO2] or sell it to parties other than the carrier." The burden of proof falls on the pipeline company to make this showing, in court, if challenged by the landowner.
In response to the decision, the Railroad Commission has proposed expanding the "check the box" nature of its T-4 application. The new rule, if adopted, will require the applicant to provide a sworn statement providing "the factual basis supporting the classification and purpose being sought for the pipeline" along with documentation supporting a claim that the line will function as a common carrier line. After that, the Commission would have 15 days to advise whether it considered the application complete. It would then have an additional 30 days to issue or deny the permit.
While imposing something of a burden on pipeline applicants, the proposal is fairly modest in scope. It does not provide for any type of hearing on the permit, nor even the right of opponents to file contesting evidence on a common carrier claim. Further, and probably most importantly, the change to this administrative rule will not (and does not purport to) change the fact that the Railroad Commission's permitting process is not determinative of the issue of whether the operator is, in fact, a common carrier entitled to exercise eminent domain. That decision will remain with the courts. Nonetheless, the fact that the applicant will have to offer some evidence in support of the claimed common carrier status at the permitting stage, should provide a landowner with more information by which to determine whether to challenge the status in court.
Public commentary on the proposed rule closed in August. The proposed rule and comments can be viewed on the Railroad Commission's website (www.rrc.state.tx.us/legal/rules/proposed-rules).