Robert B. Neblett III JACKSON WALKER LLP 100 Congress Avenue Suite 1100 Austin, Texas Telephone: (512) Facsimile: (512) 391.

Transcription

1 POWER LINES: Condemnation Issues And The Competitive Renewable Energy Zones Robert B. Neblett III JACKSON WALKER LLP 100 Congress Avenue Suite 1100 Austin, Texas Telephone: (512) Facsimile: (512) Introduction... Page 2 Issue 1: Comparable Sales: Should Private Transmission Line Easement Sales Be Admissible To Prove Value?... Page 3 Issue 2: Pre-Suit Discovery: Ramifications Of Section And In re State.... Page 10 Issue 3: Issue 4: Preliminary Surveys: Can A Non-Governmental Utility Survey My Property Without Condemning It?... Page 15 Access And Additional Lines: What Evidence Of Future Uses May A Jury Consider?... Page 17 Issue 5: The 82 nd Legislature: Potential Changes In Eminent Domain Law And How They May Affect CREZ... Page

2 Introduction The march towards Competitive Renewable Energy Zones ( CREZ ) dates back to 1999 when the Texas Legislature passed Senate Bill 7 requiring the production of 2,000 megawatts of new renewable energy by By early 2005, it was clear that Texas wind generators would reach production of 2,000 megawatts within that year. 2 But the wind generators faced a dilemma. How would they transport the clean energy they were producing in West Texas to the population centers along the IH-35 corridor? How could they continue to secure financing for additional projects without assurances that sufficient transmission would be developed to deliver the energy? Enter the 79 th Legislature and Senate Bill 20. In the first called special session of 2005, the Texas Legislature passed Senate Bill 20 which introduced the concept that is at the heart of this paper the designation of Competitive Renewable Energy Zones. Specifically, Senate Bill 20 ordered the Public Utility Commission of Texas ( PUC ) to: (1) designate CREZs in areas where renewable energy resources and land areas were sufficient to develop generating capacity from renewable energy technologies; and (2) develop a transmission plan with sufficient capacity to deliver the energy derived from renewable resources to electric customers in the population centers around the state. 3 Following the Legislature s directive, in 2008 the PUC approved the CREZ concept in a plan that called for the construction of a new network of transmission lines spanning more than 2,300 miles with a price tag in the neighborhood of five billion dollars. 4 The project was then bid out and awarded to a handful of transmission service providers who have since filed their respective Certificates of Convenience and Necessity ( CCN ) and are moving toward acquisition and construction in the coming months. When 1 S.B.7, 1999 Leg., 76 th Reg. Sess. (Texas 1999) (Enrolled). 2 David Hurlbut, A Look Behind the Texas Renewable Portfolio Standard: A Case Study, 48 Natural Resources Journal, 129, 132 (Winter 2008). 3 S.B. 20, 2007 Leg., 79 th First Special Sess. (Tex. 2005) (Enrolled). 4 Peter Behr, How Texas Lassoed the Wind, Scientific American, April 9, 2010,

3 completed, the CREZ effort will approximately triple the State s current level of wind generation/clean energy capacity to 18,456 MW. 5 While this green energy production is certainly laudable, the CREZ project and the power lines it will soon produce are not without detractors. Numerous landowners from Denton to Kerrville have loudly voiced their concerns regarding the potential impact these power lines may have on their communities. Based on the number of intervenors at the PUC, the level of press the CREZ project has received, and the general distrust for condemnors that has grown exponentially since Kelo, it is safe to say that many of the land acquisitions needed for the CREZ project will likely involve the use of eminent domain. This paper addresses several of the issues that will confront landowners and transmission service providers as the CREZ land acquisitions move forward. Issue # 1: Comparable Sales: Should Private Transmission Line Easement Sales Be Admissible To Prove Value? In 2009, a 200 mile private transmission line was completed connecting wind farms in West Texas to a substation near San Antonio. The project was completed without the use of eminent domain. While the negotiated land purchases were confidential, speculation and coffee-shop-talk would have everyone believe that high prices were paid for the easement rights needed to complete the private line. As the CREZ lines get set to cross similar country, for a similar purpose, there are many people who believe that these easement sales should be used to value the easements to be acquired for the CREZ lines. Putting aside the confidentiality issues, should or could these sales be used to determine fair market value? As an initial matter, in order for these sales to be used as comparable sales the highest and best use of the land taken would need to be for an electrical transmission line easement/utility easement. Such a use would undoubtedly result in a valuation model that was limited within the bounds of some economic unit or 5 CREZ Program Overview, available at

4 utility corridor. 6 Texas law permits landowners to introduce expert testimony providing that the land being condemned is a self-sufficient, separate economic unit from the remainder of the property. 7 When the condemned property can be considered a separate economic unit, the market value of the condemned property can be determined irrespective of the remaining property and without regard to the before and after method of valuation. 8 One published Texas case has found a valid easement corridor that could be valued by examining the prices paid for similar easements in the market place. In Bauer v. Lavaca-Navidad River Authority 9 the River Authority (the Authority ) condemned for an easement to build a water pipeline under Bauer s land. Bauer s appraiser concluded that the highest and best use of the land taken was for the sale of pipeline easements in conjunction with the previously established utility corridor. The evidence in Bauer established that the landowner had negotiated land sales and right-ofways all his life and had negotiated the sale of an electrical power line, a railroad, and three pipeline easements on this property prior to the date of taking. All of these easements were within a roughly four hundred foot strip on the property. 10 Over a period of many years, Bauer had always attempted to sell easements within this strip of his property between a farm-to-market road and the most westward easement and had attempted to establish a corridor so that future pipelines could be laid in the corridor boundaries he had established. 11 Although the Authority contended that Bauer could not value the property as a separate parcel because it was part of a larger tract, the Court of Appeals stated that Bauer was not compelled to value an easement as part of a whole and found that Bauer s utility corridor had been effectively severed. 12 The 6 The general rule in valuing property taken by condemnation does not differ if it is determined the property condemned is within a power line or easement corridor. The landowner must still be compensated for the property s fair market value in consideration of the property s highest and best use. 7 Bauer v. Lavaca-Navidad River Auth., 704 S.W.2d 107, 109 (Tex. App Corpus Christi 1985, writ ref d n.r.e.). 8 State v. Windham, 837 S.W.2d 73, 76 (Tex. 1992). 9 See Note 7, supra. 10 Bauer, 794 S.W.2d at Id. 12 Id

5 Court of Appeals held that the utility corridor on Bauer s property had been defined and severed from the remainder of the property prior to the condemnation. 13 Based on this determination, Bauer was allowed to use the sales of other pipeline easements in the vicinity to determine market value for the easement being taken by the Authority. 14 The Authority argued that the sales of easements used as comparables were not free and open because the pipeline company that purchased the comparable easements had a necessity to purchase the property it used for those easements. 15 Testimony from a former manager of the pipeline company whose sales were used as comparables established that there was no necessity. 16 Accordingly, the Court of Appeals allowed the use of sales of other pipeline easements in the vicinity to determine fair market value of the easement taken by the Authority. Based solely on Bauer, if a landowner can establish that the portion of property being condemned for the CREZ project was already severed and being marketed and used as a utility corridor, then arguably the private transmission line sales could be used in determining the value of the economic unit. But Bauer is not the end of the analysis. In Exxon Pipeline Company v. Zwahr, 17 Exxon sought to condemn a 1.01 acre easement immediately adjacent to and overlapping an existing Koch exclusive pipeline easement. 18 The Exxon line was located approximately twenty-five feet from the Koch pipeline. 19 The landowner s appraiser maintained that the 1.01 acre easement was a self-contained, separate economic unit with a highest and best use as a pipeline easement. Exxon s appraisers testified that the land s highest and best use was as farmland and the 1.01 acres in the easement was not a separate economic unit. 20 Exxon argued that Zwahr included project enhancement Id. at Id. 15 Id. 16 Id S.W.3d 623 (Tex. 2002). 18 Id. at 626 (The Exxon easement overlapped the Koch easement by approximately 82%.) 19 Id. at Id. 21 The project enhancement rule provides that the fact finder may not consider any enhancement to the value of the landowner s property that results from the taking itself

6 in his valuation to compute fair market value by using Exxon s easement in concluding that a separate economic unit exists for pipeline easements on Zwahr s property. 22 The Texas Supreme Court agreed with Exxon s argument that Zwahr s appraiser improperly included project enhancement in his valuation of the 1.01 acre economic unit. 23 The court took issue with the fact that the Zwahr s expert repeatedly acknowledged that Exxon s condemnation created the economic unit and that the 1.01 acre unit did not exist until after the condemnation. 24 The court dismissed Zwahr s contention that the existing Koch easement was the basis for its highest and best use conclusion finding that Zwahr s reliance on the existing pipeline does not negate the fact that Exxon s condemnation itself created the economic unit [Zwahr] used for determining highest and best use. 25 The court held that the facts of Zwahr were distinguished from Bauer, in which the Corpus Christi Court of Appeals concluded that testimony establishing a separate economic unit was admissible when the separate unit existed before the condemnation project at issue and had defined parameters different from, and not because of, the condemnation project itself. 26 Another significant case involving corridor valuation was U.S. v Acres of Land. 27 In that case the United States condemned for pipeline easements for the Strategic Petroleum Reserve. The easements adjoined the north side of an existing pipeline corridor which followed an east-west farm-to-market road. 28 The landowner s valuation witness asserted that the 50 strip of condemned land was a separate entity from the remaining acreage and that the highest and best use was for a pipeline right-of-way. 29 The landowner then used comparable sales of pipeline easements in the area to arrive at fair market value. 30 The district court 22 Id. at Id. at Id. at Id. at Id. 27 U.S. v Acres of Land, 680 F.2d 388 (5 th Cir. 1982). 28 Id. at Id. at Id

7 accepted the landowner s appraisal of the pipeline corridor and comparable sales of other easements to show the highest and best use. On appeal, the Fifth Circuit concluded that the trial court had erred in finding that the strips of condemned land were severed from their parent tracts and did not allow a showing of the highest and best use of a pipeline corridor. 31 The Fifth Circuit pointed out that the condemned easements did not lie between existing pipelines, but at the edge of a large field adjacent to existing pipeline easements. 32 The Fifth Circuit further stated that the landowners had taken no steps to sever the condemned strips of land from the rest of the property. 33 In fact, the landowners witnesses could not even convincingly define the exact parameters of the potential pipeline corridor within which the fifty-foot condemned strip of land was located. 34 The Fifth Circuit held that the mere fact that the landowners hoped that these tracts would be acquired for pipeline purposes did not sever them from the rest of the land. 35 It is clear from the holding in Zwahr, Bauer and 8.41 Acres of Land, that it will be difficult for a landowner to establish a power line corridor theory of valuation which would allow the private transmission line sales to then be used to value the same. Arguably, Bauer provides a basis for such a theory in the rare situation where a landowner has Bauer type facts/features already existing on his property. Of course, the specific facts of Bauer also eliminated the business necessity defense. As previously stated, the private transmission line easements sought to be used as CREZ comparables were purchased along a 200 mile route that extended between two fixed points. Taking into consideration certain land features, engineering demands, and overall construction cost, there was likely very little room to modify or alter the route of the private transmission line once it had been engineered. With the major parameters of the transmission line set, it seems logical to argue that the purchaser of the easements was not necessarily a willing buyer but was under a business necessity to acquire parcels within the parameters of 31 Id. at Id. at Id. 34 Id. 35 Id

8 the engineered route. Consider the following hypothetical and how it may be applied to the private transmission line sales. A private corporation has purchased all but two of the ten tracts of land it must acquire to transport its product from the point of manufacturing to a distribution hub. The costs to relocate the manufacturing location or distribution hub are prohibitively expensive, if not impossible. The two remaining landowners have learned of the corporation s quandary and are using this knowledge to negotiate prices far in excess of what the other landowners were able to negotiate, i.e., what the market would support were it not for the corporation s need to purchase these particular tracts of land. Assuming this private corporation lacks the power of eminent domain, it is likely to pay a price far in excess of the true market value of the two remaining properties. Should evidence of such a sale be admissible to show the fair market value in a later condemnation proceeding of a similar nearby piece of land? As we all know, fair market value is commonly defined as the price a willing buyer, under no obligation to buy, would pay to a willing seller, under no obligation to sell. 36 Flowing from this definition are several corollary rules governing the admission (or exclusion) of expert testimony regarding comparable sales in a proceeding to determine the fair market value of land taken pursuant to condemnation proceedings. For example, Texas courts have consistently held that proof of sales of property to a corporation or a governmental agency having the power of eminent domain are not admissible in a condemnation suit. 37 The reason is that such sales do not meet the willing seller/willing buyer concept; they are made under a direct or an implied threat of condemnation and, theoretically at least, are not free and voluntary. 38 Thus, in order to be admissible, the proponent must show that the comparable sale was free and open. 39 Similarly, Texas courts have held that a sale in which the seller was under economic duress and pressure for monetary relief 36 State v. Windham, 837 S.W.2d 73, 77 (Tex. 1992). 37 Leon v. State, 426 S.W.2d 562, 565 (Tex. 1968). 38 Id. 39 Bradfield v. State, 524 S.W.2d 438, 440 (Tex.App. Austin 1975, writ ref d n.r.e.)

9 should be excluded because it is not a free and open sale but, instead, a sale under economic compulsion. 40 By the same token, courts should not admit evidence of sales in which the buyer rather than the seller is under such economic compulsion that the sale is no longer free and voluntary. The author has not found Texas cases confronting this precise issue where the buyer did not admit that it was under no economic compulsion to buy. Other courts, however, have recognized that an involuntary sale is inadmissible as evidence of fair market value whether the involuntariness arises on the part of the buyer or seller, and whether the involuntariness is legal or practical. For example, in Ford v. Destin Pipeline Company, L.L.C., 41 the Mississippi Supreme Court, sitting en banc, confronted the following fact situation. The Destin Pipeline Company sought to condemn certain rightof-ways and easements in order to construct a gas pipeline from the Gulf of Mexico to Mississippi. Destin Pipeline was unable to negotiate a voluntary purchase of the necessary rights from certain landowners, including the Rena A. Ford Inter Vivos Trust. Destin Pipeline therefore exercised its right of eminent domain, placing a value of $3,335 on the condemned rights. The Trust valued the condemned rights at over one million dollars. The jury returned a verdict valuing the condemned easement and right-of-way at $17,500. At trial, the Trust sought to introduce evidence of its own previous sale of a right-of-way to Koch- Gateway Pipeline. At the time of the sale to Koch, Koch was in the process of constructing a pipeline, and had already purchased most of the right-of-ways that it needed, including those on either side of the Trust s property. If Koch could not purchase the Trust s property, then it would have to re-route its pipeline. Koch ultimately determined it would be more cost-efficient to pay an inflated price for the Trust property than to redraw its plans and purchase additional properties. At trial, Destin Pipeline opposed the Trust s attempted introduction into evidence of the sale price of the right of way it had previously sold to Koch. As in Texas, Mississippi courts have defined fair market 40 Id. at So. 2d 573 (Miss. 2000)

10 value as the sales price that would be negotiated between one who wants to purchase and one who wants to sell The seller must be one who desires but is not obligated to sell, and the buyer must be under no necessity having the property. 42 Accordingly, the trial court excluded evidence of the sale. On appeal, the Mississippi Supreme Court held that the Koch-Trust purchase was properly excluded as a comparable sale because of the business necessity created by the circumstances. 43 The court cited Nichols on Eminent Domain, as well as cases from Maryland and Connecticut in which the courts recognized that compulsion could be created by business circumstances and a holdout seller could cause a distorted price that would not actually reflect market value. Destin Pipeline, and the courts cited within, excluded evidence of a sale occasioned by business necessity. The author submits that, as in Destin Pipeline, Texas trial courts would likely exclude evidence of a prior sale when that prior sale has been so influenced by the business necessity of the purchaser that it can no longer be fairly characterized as free and open. Like the pipeline company in Destin Pipeline, once the parameters of the route were set and the real estate acquisitions were underway, the company constructing the private transmission line had two choices: it could pay inflated prices for the properties within the set parameters or it could re-route the transmission line and face the same problem. The fact that said company continued within the established parameters of the pre-selected route did not evidence that it was paying fair market value for the property being acquired. Simply put, there was a business necessity to purchase the tracts it purchased. Accordingly, the private transmission line sales should and would probably be excluded from comparison on the grounds that they fail to represent a true willing buyer/willing seller fair market transaction. Issue # 2: Pre-Suit Discovery: Ramifications of Section and In re State Section of the Texas Property Code requires a governmental entity that wants to acquire real property through the use of eminent domain to produce a copy of any and all existing appraisal reports related 42 Id. at Id. at

11 to the landowners property and used to value the same to the landowner at the time an offer to purchase the property is made. 44 Section does not apply to non-governmental entities with the power of eminent domain. Prior to 2007, there was no statutory mechanism for landowners to discover the fair market value that a non-governmental condemnor had placed on the landowners properties it intended to condemn. In 2007 the Texas Legislature created a critical infrastructure production statute that is now codified in section of the Texas Property Code. Section requires entities that are (a) deemed to be critical infrastructure, 45 and (b) authorized by law to take private property through the use of eminent domain, to produce information related to proposed or existing condemnation projects to landowners that request such information. In order for this section to apply, the request for information must (c) be made by a person who owns property that is the subject of a proposed or existing condemnation proceeding, and (d) the information must be related to the taking of the requestor s private property through the use of eminent domain. 46 While does not define the term information, logic would indicate that appraisal reports, plans and profiles, construction schedules, and like items would have been contemplated by the Legislature does limit the production of requested information to information related to the specific property owned by the requestor, and requires the requestor to provide sufficient details to allow the utility to identify the specific tract of land for which the information is being requested. 48 The law further provides that answers to a request for information must be responded to in accordance with the Texas Rules of Civil Procedure as if the request was made in a matter pending in a district court. 49 Section does not limit 44 Tex. Prop. Code Section (a) specifically states that utilities (i.e. electric transmission utilities) fall within the definition of critical infrastructure. 46 Tex. Prop. Code (a). 47 Based subparts (c) and (d), arguably the request for information could pertain to any matter that is not privileged and is relevant to the condemnation of the landowner s property. See Tex. R. Civ. Pro Tex. Prop. Code (b). 49 Tex. Prop. Code (c)

12 its applicability to any time frame during the life of a condemnation project, but seemingly indicates that a request may be filed before or after a condemnation suit has been initiated. 50 Putting aside the issues related to the breadth of information that could be requested by a landowner, could such a request, or series of requests, alter the intended speedy trial that a Special Commissioner s hearing is intended to afford? If a request for information was made just prior to a scheduled Special Commissioner s hearing, would a court have jurisdiction to postpone the hearing until the information had been provided and sufficiently reviewed? There are no Texas cases that specifically answer these questions, but the recent case of In re State of Texas 51 should provide some insight to practitioners who may be faced with these questions in the coming months. The facts of In re State are straight forward. The Texas Department of Transportation ( TXDOT ) instituted an eminent domain proceeding in an effort to acquire property for the expansion of IH-35. After TXDOT filed its petition, the trial court appointed three special commissioners to assess the damages to the property being condemned. Prior to the hearing, the landowners filed an extensive request for information, asking TXDOT to produce the following: appraisals, value studies, reports concerning the property to be condemned; the work file used by an appraiser to make an initial valuation, any design plans and documents showing details of the construction to be conducted on the property, documents that were relevant to the market value of the property to be condemned and to the value of the remainder of the property before and after the taking, and documents relating to any regulation or rule that affects the value of the property. 52 TXDOT raised numerous objections which prompted the landowners to file a motion to compel. The trial court granted the motion to compel, and the Austin Court of Appeals granted TXDOT s petition for writ of mandamus See Tex. Prop. Code (e) (stating that jurisdiction to enforce the section resides in the court in which the condemnation was initiated or if the condemnation has not been initiated, in a court that would have jurisdiction over such a proceeding or a court in the county in which the utility has its principal place of business and has jurisdiction over condemnation matters S.W.3d 848 (Tex.App. Austin 2010, no pet.) 52 Id. at Id

13 The Court of Appeals held that the trial court abused its discretion in ordering TXDOT to disclose the information sought by the landowners under section The court s holding seems to rest on its conclusion that section was not applicable to TXDOT for two reasons: 1) TXDOT was a governmental agency and did not fall under the definition of critical infrastructure and 2) TXDOT was not authorized by law to engage in eminent domain actions, rather its power of eminent domain flowed from the State s inherent sovereign power of eminent domain. 55 The court s ruling in this regard was limited solely to TXDOT that is to say that the electric utilities exercising the power of eminent domain for the construction of CREZ projects are specifically included under the definition of critical infrastructure and their respective powers of eminent domain likely flow from either section of the Utilities Code or the enabling legislation that created the utility. There is little doubt that section will apply to CREZ utilities but to what extent and under what time frame? The Austin Court of Appeals spent a majority of its opinion writing on the two part procedural process that eminent domain actions follow: an administrative phase (Special Commissioner s hearing) followed, if necessary, by a traditional trial setting. The court repeatedly pointed out that the administrative phase was a means to quickly award damages... without the delays that occur in court proceedings, that it provides parties with opportunity to present their case in streamlined fashion and to resolve their differences without the burdens of a trial and that the purpose of the administrative phase is to provide the parties an opportunity for a prompt resolution of the case with a minimum of expense. 56 The court further stated that during the administrative phase, the trial court has no authority to control the timing of or otherwise interfere with the commissioners hearing. 57 The court opined that the landowners assertions that the condemnor was subject to these discovery requests prior to the Special Commissioner s hearing were in direct conflict with the two phase statutory scheme stating that despite the legislative mandate denying the trial court an active role in the 54 Id. at Id. at Id. at 850 (internal citations omitted). 57 Id. (internal citations omitted)

14 administrative phase of an eminent domain proceeding and requiring that commissioners set and conduct a hearing promptly and at the earliest practical time, the [landowners] essentially ask this Court to conclude that a large proportion of (if not all) eminent domain proceedings initiated by a governmental entity are subject to the delays inherent in scheduling hearings before a trial court. 58 The court further stated that construing section as applying to the administrative phase would necessarily undermine the intent of the legislature by adding expense to the administrative phase 59 and that while the legislature is free to override its prior intent through subsequent enactments, the breadth of the departure suggested by the [landowners] in the absence of language expressly disavowing the prior intent gives us pause. 60 What does this pause mean for the landowners and utilities involved in the CREZ project? At the very least, landowners should anticipate that any attempt to use section to slow down or forestall a Special Commissioner s hearing will be unsuccessful. The best practice for landowners wishing to secure information under section would be to submit their requests to the condemnor as soon as they are aware their property may be the subject of a proposed condemnation proceeding. If possible, this should be done prior to the filing of a petition in condemnation and/or the appointment of the Special Commissioners. In the same vein, a prudent landowner may want to limit his or her request to information the condemnor should readily have on hand in order to avoid an argument that such a request is imposing the burdens and cost of a full blown trial before the administrative phase has been completed. In keeping with the spirit and letter of the law, CREZ condemnors will likely want to accommodate reasonable and timely requests for information made by CREZ landowners. If a particular request for information is overly burdensome, the foregoing language of In re State would likely provide a sound basis for objecting to such a request while the case is in its administrative phase. That said, if the overall goal is to acquire the land needed for the project in the most timely manner, then numerous objections and court hearings on what can and cannot be discovered may not be in the condemnors interest. 58 Id. at 855 (internal citations omitted). 59 Id. 60 Id

15 Issue # 3: Preliminary Surveys: Can a Non-Governmental Utility Survey My Property Without Condemning It? As the CREZ transmission lines have moved from conceptual ideas to reality, more and more landowners have found themselves face to face with the very real possibility that their land may be affected by the CREZ project. In today s information age, numerous landowners have looked to the internet and other expert sources in an effort to learn about the condemnation process. While a majority of the information landowners have been able to gather from these sources is generally sound, our office and clients have recently experienced a large number of landowners who claim that a non-governmental utility does not have the right to conduct a preliminary survey on their properties. The interesting issue with this misunderstanding is that this legal issue has actually been settled for over 55 years. In Lewis v. Texas Power & Light 61 the Dallas Court of Appeals considered the appeal from a temporary injunction restraining landowners from interfering or preventing Texas Power & Light Company ( TP&L ) from surveying the landowners property or tampering with the stakes and markers placed on the property by the TP&L survey crews. 62 The court opined that the injunction would stand or fall on one question: Was TP&L authorized under the law to enter upon the landowners property to make a preliminary survey with a view to the later acquisition of easement rights for the construction of its transmission line? 63 The court answered this question in the affirmative, holding that the predecessor to section of the Texas Utilities Code conferred two distinct powers upon electric current and power companies: 1) the power to enter upon, and 2) the power to condemn and appropriate. 64 The court held that in using such language, the legislature recognized the necessity of preliminary surveys and intended to grant electric current and power companies the authority to conduct such surveys separate and apart from an action in S.W.2d 950 (Tex.App. Dallas 1955, writ refused n.r.e.). 62 Id. at Id. at Section of the Texas Utilities Code states that gas or electric corporations have the right and power to enter on, condemn, and appropriate the land, right-of-way, easement, or other property of any person or corporation

16 condemnation. 65 The court went on to say that the electric companies were not required to deposit any sums or preliminarily pay any damage amount in order to exercise their right to survey. 66 It is also worth noting that the court upheld the granting of temporary injunctive relief even though it granted all the relief TP&L could have obtained in a trial on the merits on the grounds that TP&L s right to survey was a right of action and therefore the status quo was being disrupted by the landowners denial of access for surveying purposes. 67 In light of Lewis, and the multitude of cases that have followed with similar rulings, 68 there is no doubt that the electric utilities involved in the construction of the CREZ project have the right to enter upon properties along the proposed transmission line routes in order to conduct preliminary surveys to assist in the setting of the lines. Lewis, and the cases that follow, also allow the CREZ utilities to seek injunctive relief to enforce these rights if necessary. It is the author s opinion that CREZ landowners and utilities should work together to reach amicable agreements with respect to the surveying of properties. Knowing that surveys are allowed, a landowner should attempt to negotiate favorable terms for such surveys. For example, establish a time frame for inspection that works best for the landowner and identify entry points and routes within the property that the landowner would like the utility to use. It may also be beneficial to use the opportunity to educate the utility, i.e., arrange to accompany the utility crews on the survey, explain why the transmission line should or should 65 Lewis, 276 S.W.2d at Id. at Id. at See generally, I.P. Farms v. Exxon Pipeline Co., 646 S.W.2d 544, 545 (Tex.App. Houston [1st Dist.] 1982, no writ) (ancillary to eminent domain power is the authority to enter upon the land to make a preliminary survey); Puryear v. Red River Authority, 383 S.W.2d 818, (Tex. Civ. App. Amarillo 1964, writ ref d n.r.e.); Hicks v. Texas Municipal Power Agency, 548 S.W.2d 949, 955 (Tex.App. Houston [14th Dist.] 1977, writ ref'd n.r.e.) ( [g]enerally, courts have upheld the right of a governing body vested with condemnation power to enter into lands for the purpose of a preliminary survey either by express statutory grant or by implication ); In re Energy Transfer Fuel, L.P., 298 S.W.3d 357, 358 (Tex.App. Tyler 2009, no writ)(acknowledging in cursory dicta that a gas corporation with the power of eminent domain had the right to enter upon property to make preliminary surveys of proposed routes); Texas Rice Land Partners, Ltd. v. Denbury Green Pipeline-Texas, LLC, 296 S.W. 3d 877, (Tex.App. Beaumont 2009, pet. filed) (upholding temporary injunction and summary judgment granted in favor of pipeline company on the grounds that as a common carrier, pipeline company had the authority to conduct surveys for the location and placement of its pipeline)

17 not be located on certain parts of your property, and identify cultural/historical sites on your property or sites that may house endangered species, etc. The same goes for CREZ utilities. It is, almost always, within the utilities best interest to negotiate access with the landowner without having to go to the courthouse. Utilities can use this opportunity to learn more about the landowners property and the landowners themselves. Furthermore, utilities may be able to negotiate for additional rights from the landowner that they might not be awarded by the courts. 69 Finally, it is to the utilities benefit to get to know the landowner and develop a human relationship with him or her. After all, a good relationship between the parties could mean the difference between a quick negotiation on adequate compensation for the project or a long drawn out legal battle over the same. Issue # 4: Access and Additional Lines: What Evidence of Future Uses May a Jury Consider? A majority of the condemnation petitions filed by CREZ utilities will likely contain language allowing the condemning utility some form of ingress/egress over the landowners adjoining land (remainder) in order to access the easement being acquired when access along that easement is unavailable. Its is also likely that unforeseen contingencies will arise during the construction of the CREZ project that will cause construction crews to use these ingress/egress rights over the remainder in a way that could create a compelling remainder damages story for the jury. But can bad construction facts/acts be used to show future conformity therewith? In Texas Electric Service Co. v. Campbell 70 the Texas Supreme Court focused on evidence elicited at trial regarding the derogatory treatment of the remainder by the utility company s contractor during construction of the line. There was testimony that the remainder property was scattered with rubbish and trash, littered with beer and whiskey bottles, and otherwise rutted with truck tracks that bore no relationship to the construction of the transmission line within the easement. 71 The court opined that: 69 See Hicks, 548 S.W.2d at 956 (allowing a lineal survey but denying the right to conduct core sampling) S.W.2d 742 (Tex. 1960). 71 Id. at

18 [this] testimony was introduced for the purpose of showing the diminishment in value of the land and it must have been calculated to create the impression with the jury that the easement acquired over [Campbell s] land gave to the [utility], its agents and employees the unrestricted right of entry and use of the land adjoining the right-of-way for purposes other than to take care of the transmission line and that during the life of this easement, [Campbell s] land would be littered up with trash from time to time by [the utility s] employees. 72 After reviewing the petition, the court noted that the easement sought and obtained did not grant the utility or its employees the right of unrestricted access or the privilege of driving its vehicles at will over the landowner s property. 73 The court held that, based upon the rights obtained in the petition, the evidence of the derogatory treatment of the remainder, both in the present and the future, was not reasonably probable and was inadmissible. 74 The court further noted that the reasonable right of ingress/egress granted to the condemnor under the petition did not grant the utility the right to operate trucks all over the landowner s property at will and that such a use would give rise to an action in trespass. 75 What about additional lines? The PUC s current policy calls for additional transmission lines to be constructed next to pre-existing lines or easements when available. Certainly this potential future occurrence could have an affect on the current market value of the land but can this evidence reach the jury? Texas courts have also considered a landowner s right to recover for future plans that might result in a future taking. In Hubler v. City of Corpus Christi, 76 Mr. Hubler filed an inverse condemnation suit claiming that the City of Corpus Christi, through its combined municipal drainage and state road construction projects, had in effect taken a drainage easement across his land without paying adequate compensation as required by the constitution. 77 In support of his theory of recovery, Hubler argued that the City had recently developed and discussed a master drainage plan and had begun to implement this master plan by constructing drainage structures some three to five miles away from his property. 78 Hubler further argued that the City s completed 72 Id. 73 Id. 74 Id. 75 Id. at S.W.2d 816 (Tex.App. Corpus Christi 1978, writ ref d n.r.e.). 77 Id. at Id

19 portion of the project resulted in an intentional and repeated increase in the volume of surface water flowing across his land, and that it was probable within the foreseeable future that the entire project would be completed resulting in an additional increase in the surface water flowing across his land. 79 In essence, Hubler argued that, in addition to the damages his property was suffering as a result of the completed taking, the present market value of his property was further damaged by the reasonable probability that future portions of the drainage project would result in additional damages to his property. The City responded to these allegations by contending that, if they were liable, then they would only be liable for any partial taking that resulted from the portion of the project which was actually completed at the time of trial. 80 Accordingly, the City filed numerous special exceptions directed at the landowner s allegations concerning the anticipated consequences of the City s future plans. 81 The trial court sustained the City s special exceptions and the landowner appealed. The Corpus Christi Court of Appeals affirmed the lower court s ruling, holding that it is well settled in Texas that future plans which might result in a future taking are merely future prospects and, as such, cannot constitute a present taking. 82 The Court stated that Hubler s cause of action for a partial taking must be confined to the effects on his land caused by the City s completed projects 83 and that: evidence of the decrease in market value caused by the prospects of the completion of the entire drainage project [were] not related to the completed projects, and, as an evidentiary matter, too remote and speculative to be admissible on the issue of the decrease in market value caused by the completed projects. 84 The Court further held that even assuming that the completion of [future] projects is so reasonably probable within the foreseeable future that they are having a present impact upon the market value of 79 Id. 80 Id. at Id. 82 Id. at 821 (internal citations omitted). 83 Id. 84 Id. at

20 plaintiff s land, the diminution in market value is at this time no more than a noncompensable consequential damage. 85 Issue # 5: The 82 nd Legislature: Potential Changes in Eminent Domain Law And How They May Affect CREZ On January 11, 2011 Governor Rick Perry announced three emergency items for the Texas Legislature to immediately address in the 82 nd Regular Session. The State s purported 27 billion dollar budget shortfall did not make the emergency list but eminent domain reform did. As of the date of this writing 86, there are a handful of bills that could have an effect on CREZ condemnation proceedings with none being more prominent than Senate Bill Senate Bill 18 is a reincarnation of House Bill 2006 (filed in response to Kelo in 2007) and the senate bill bearing the same number filed in While both of those bills failed to become law for various reasons, 88 the Governor s fast tracking of eminent domain reform coupled with his assurance to sign the law if it is passed, leads the author to discuss some of its possible ramifications here. In pertinent part, SB 18 makes the following changes which will likely have some affect on the condemnors and landowners involved in the CREZ project: Amends section (Disclosures) to apply to any entity with eminent domain authority as opposed to just governmental entities. The amended language would require condemnors to disclose with their offer to purchase any and all appraisal reports in their possession that specifically relate to the landowner s property and were prepared within 10 years preceding the date of the offer as opposed to just the appraisal used to determine the final offer. The offer and the appraisals must be sent by certified mail, return receipt requested. The amended language would require landowners to disclose any and all current and existing appraisal reports the landowner had acquired that relate to the owners property and were used in determining the landowners valuation opinion to the condemnor on the earlier of: 10 days after the day the landowner received the report or the third 85 Id. 86 The author acknowledges that legislation is a moving target and the language of Senate Bill 18 discussed below is subject to change. 87 If Senate Bill 18 looks and sounds familiar to you it should. Similar legislation was attempted in House Bill 2006 in 2007 and Senate Bill 18 in House Bill 2006 was vetoed by the Governor due to the alleged billion dollar negative fiscal impact it would have had on taxpayers. Senate Bill 18 filed in the 81 st Legislative Session was a victim of gridlock in House of Representatives that resulted from the Voter Identification Bill

21 business day before the date of the Special Commissioner s hearing at which the report was to be used. The current law requires disclosure no later than 10 days prior to the special commissioner s hearing. 89 As amended, section would also prohibit condemnors from including a confidentiality provision within their offer and require condemnors to inform the landowner that he or she has the right to discuss any offer or agreement with others or to keep the offer or agreement confidential. Adds section (Bona Fide Offer) requiring a bona fide offer be made prior to instituting a condemnation proceeding. 90 In order for the offer to be considered bona fide the following must occur: 1. The initial offer must be made in writing; 2. The final offer must be made in writing and made on or after the 30 th day after the date on which the initial written offer was made; 3. Before making a final offer the condemnor must obtain a written appraisal from a certified appraiser of the value of the property to be acquired and any damages to the remainder of the property as a result of the acquisition; 4. The final offer must be equal to or greater than the amount of the written appraisal; 5. A copy of the written appraisal, a copy of the deed, easement, or other instrument conveying the property sought to be acquired, and a copy of the landowner s bill of rights 91 must be provided with the final offer letter or at some earlier time; and 6. The landowner must have at least 14 days to accept or reject the final offer. Section (Cost and Fees) would be amended to provide that the failure to make a bona fide offer would result in abatement of the suit and the landowner would be allowed to recover all costs as well as attorney s fees and professional fees (appraisal fees) that were directly related to the failure to make a bona fide offer. Amends section (Condemnation Petition) to require the condemnor to state with specificity the public use for the property is being acquired, state that a bona fide offer was made, and provide a copy of the petition to the landowner by certified mail, return receipt requested. Amends section (Special Commissioners) to allow the parties to strike one of the three commissioners appoint and afford the parties a reasonable period of time to make such strikes. The bill would further amend section to require that no Special Commissioner s hearing be set until after the 20 th day after the date the commissioners were appointed. Amends section (Notice) to provide that notice of the Special Commissioner s hearing must be served on a party not later than the 20 th day, as opposed to the 11 th day, before the day set for the hearing. Amends section (Repurchase Disclosure) to require all condemnors, as opposed to just governmental entities, to disclose that the property may be repurchased under certain conditions. 89 In practice, landowners rarely produce an appraisal report in compliance with the 10 day requirement and more often than not, the condemnor receives the landowners appraisals around 3 business days before a hearing. 90 This amendment seeks to clarify what type of offer is required following Hubenak v. San Jacinto Gas Transmission Co., 141 S.W.3d 172 (Tex. 2004). 91 Section (a) requires that the landowner s bill or rights be sent to the landowner via first class mail 7 days before a final offer is made

22 Repeals section , discussed above, and replaces it with section (Production of Information) which simply requires all condemnors, as opposed to those deemed to be critical infrastructure, to produce information in the manner currently stated in section If Senate Bill 18 were passed without amendment, what affect would these changes have on CREZ? To a large extent, it would depend on the amount of work that could occur before the bill s effective date of September 1, Even if Senate Bill 18 became effective immediately, it should only slightly modify the current practice of the CREZ condemnors. The key for condemnors under Senate Bill 18 would be early preparation and organization. Condemnors may need to employee multiple appraisal teams and the initial appraisals need to be legally and factually sound. 93 Obviously, checklists and timelines for ensuring compliance with the bona fide offer would be necessary, and condemnation petitions would need to be amended to comply with the new requirements. Condemnors might also consider the filing of petitions earlier than they would under current law in an effort to start the clock running on the longer time periods that must elapse prior to a Special Commissioner s hearing. That said, the 9 day additional delay between the appointment of commissioners and the setting of a hearing would probably provide very little additional advantage to a landowner. Possession & Use Agreements should, and will, likely continue to be employed by all parties to allow the landowner more time to prepare his case while allowing the condemnor to move forward with its project v.1 92 This assumes that the Legislature doesn t change the effective date of the legislation in light of the emergency declaration. 93 Senate Bill 18 requires all appraisals to be produced to the landowner. Multiple appraisals could lead the jury or Special Commissioners to question the competence and integrity of your appraiser. Furthermore, Senate Bill 18 could be read to require new final offer letters to be sent, petitions to be amended, and further delays to be experienced if an additional appraisal modified the condemnors previous bona fide offer