This case was brought to our attention by Robert Thomas over at the inverse condemnation blog, an excellent source for information regarding eminent domain news.
The case, Kentuckians United to Restrain Eminent Domain, Inc. v. Bluegrass Pipeline Company, LLC (Civil Action No. 13-CI-1492) was recently decided by the Franklin Circuit Court for the Commonwealth of Kentucky. The court granted the plaintiff’s summary judgment motion, which the company will almost certainly appeal. Therefore, this is definitely a case to keep an eye on in the coming months.
The facts and background are as follows:
Kentuckians United to Restrain Eminent Domain, Inc. (“KURED”) is a non-profit entity formed under the laws of Kentucky for the stated purpose of protecting Kentuckians from “the threat of and attempts to exercise eminent domain by entities not in public service to Kentuckians.” Bluegrass Pipeline Company, LLC, on the other hand, is a limited liability company, who, together with Williams Company and the Boardwalk Pipeline Partners, proposed a 24-inch pressurized underground pipeline through Kentucky in order to transport natural gas liquids (“NGLs”) through Kentucky. These NGLs would be a mixture of several noxious chemicals, including pentane, propane, butane, isobutene, and ethane. The pipeline would be used to transport the NGLs from the Marcellus and Utica shale formation in Pennsylvania, West Virginia, and Ohio, to the Gulf of Mexico.
Plaintiffs were approached by representatives from Bluegrass who sought to negotiate an easement over their property for the pipeline. During the course of their negotiations, Bluegrass informed KURED members that they had the power of eminent domain, but “did not like to use it.”
This led KURED to file an action in the Franklin Circuit Court seeking a declaration of rights under KRS 418.040 as to the validity of Bluegrass’ claim that is has the power of eminent domain under Kentucky Law. KURED sought a ruling adjudicating the right of Bluegrass to invoke Kentucky statutes 278.502, 416.675, and 278.470 to use eminent domain to condemn properties and install the NGL pipeline through Franklin and other Kentucky counties.
The Laws of Kentucky:
Chapter 278 of the Kentucky Revised Statutes (“KRS”) is entitled “Public Service Commission” and is dedicated to “public utilities.” The Public Service Commission is dedicated to regulating utilities and ensuring that consumers have access to safe and reliable services at reasonable rates. Under the law, only regulated entities that adhere to the requirements of the statute are authorized to use eminent domain. The statute provides: “Any corporation or partnership organized for the purpose of … operating oil or gas well or pipeline for transporting or delivering oil or gas, including oil and gas products, in public service, may… condemn the lands and material or the use and occupation of the lands.”
The parties disagreed as to two major definitional elements in the statute: (1) oil or gas (including oil and gas products) and (2) “in public service.”
KURED argued that the Bluegrass pipeline was not “in public service” as required by KRS 278.502 because it would be transporting NGLs for distribution and export and because it is not regulated by the Public Service Commission. KURED argued that a requirement to be “in public service” as required by the Statute was “distinct from and in addition to” an entity being labeled a carrier for a “public use.” KURED argued that Bluegrass could not satisfy either of these prongs because it was interstate (rather than intrastate) and did served neither Kentucky customers nor producers. Further, KURED argued that the NGLs that would be transported through the pipeline were neither “oil or gas” nor “oil or gas products” as required by KRS 278.502.
Bluegrass, in opposition to the summary judgment motion, argued that there were genuine issues of material facts in play. As to the merits, it argued that NGLs were “oil, gas, or oil and gas products” under KRS 278.502 because they have “similar origins and chemical makeup,” meaning they are primarily composed of hydrogen and carbon. It also argued that it was acting “in public service” because, as a common carrier, it would “furnish services to the public, potentially including manufacturers and producers in Kentucky.”
The Court, upon Plainiff’s summary judgment motion, concluded that Bluegrass lacked the power of eminent domain under Kentucky Law. The court noted that Chapter 278 of the Kentucky laws was enacted to protect consumers “against costly and unnecessary capital construction.” And, by regulating utilities, the court said, the PSC “ensures reasonable rates and reliable service” for the public.
With that background, the court found that Bluegrass sought to “benefit from the rights conferred on regulated utilities by KRS Chapter 278 without subjecting itself to the responsibilities, duties, and regulatory oversight imposed by those statutes.” The court cited the procedural history of the statute to conclude that the legislature’s intent was to “impose regulatory oversight for gas pipeline companies that benefit from the statute’s grant of eminent domain power.” The court found that Bluegrass was attempting to “circumvent the statutory protections for landowners to take advantage of the right of eminent domain” and that it was clear form the language [of the statute] and context of the [chapter] as a whole that that right of eminent domain under KRS 278.502 is restricted to companies that are regulated by the PSC.”
In conclusion, the court wrote:
Bluegrass is a private, for-profit, unregulated entity engaging in the interstate transportation of NGLs. It is not acting “in public service,” and therefore it falls outside the scope of KRS Chapter 278. The proposed pipeline transports NGLs through Kentucky, but does not have any impact on the energy needs of Kentuckians. Bluegrass argues that the pipeline will be available for Kentucky manufacturers and producers. However, the only stated purpose of the pipeline is to transport NGLs to the Gulf Coast to be processed and sold in Louisiana; not to provide natural gas to Kentuckians, but to have NGLs, a mixture of highly dangerous chemicals, running through Kentucky farmlands and forests, and near rural communities. Bluegrass cannot rely on KRS 278.502 as a basis for its condemnation power because it applies only to utilities regulated by the PSC. Moreover, Bluegrass does not fall within the scope of the term “in public service” because it is transporting NGLs interstate through Kentucky. Bluegrass is not serving Kentucky’s consumers and is not a utility regulated by Kentucky’s PSC.
The full decision can be found here. We’ll be sure to keep on eye on this case as it makes its way through the appeal process which is almost certainly bound to ensue.