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Texas Appeals Court Holds that Gas Utility Qualifies as a “Public Use” by Legislative Declaration

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In Texas Rice Land Partners, Ltd. v. Denbury Green Pipeline-Texas, LLC, 363 S.W.3d 192, 200 (Tex. 2012), the Texas Supreme Court held that in order for the CO2 pipeline at issue to qualify as a common carrier with the right of eminent domain under Section 111.002(6) of the Texas Natural Resources Code, “the pipeline must serve the public; it cannot be built only for the builder’s exclusive use.” The Court held that “for a person intending to build a CO2 pipeline to qualify as a common carrier under Section 111.002(6), a reasonable probability must exist that the pipeline will at some point after construction serve the public by transporting gas for one or more customers who will either retain ownership of their gas or sell it to parties other than the carrier.” Id. at 202. In response to a flood of amicus briefs urging the Court to limit the breadth of its “reasonable-probability test,” on rehearing the Court limited its holding to persons seeking common-carrier pipeline status under Section 111.002(6), and expressed “no opinion on pipelines where common-carrier status is at issue under other provisions of the Natural Resources Code or elsewhere.” Id. at 202 n.28.

In the wake of Texas Rice, landowners in Texas condemnation proceedings have routinely sought to have pipelines other than CO2 pipelines be required to demonstrate that they satisfy the reasonable-probability test. In TC&C Real Estate Holdings, Inc. v. ETC Katy Pipeline, Ltd., 2017 WL 7048923, the Tenth Court of Appeals in Waco, Texas issued the first opinion addressing the applicability of the reasonable-probability test to gas utilities claiming the right of eminent domain under the Texas Utilities Code.

The court recognized that by legislative declaration, gas utilities are “affected with a public interest.” Tex. Util. Code § 121.051(a). This declaration, the court noted, “is to be given great weight by the court in reviewing a complaint that a particular use, sanctioned by the legislature, is in fact, private,” and such declaration “is binding on the court unless it is manifestly wrong or unreasonable.” According to the court, the legislature “determined the importance to the public of moving natural gas from the producing areas to where it can be used.” Accordingly, the court held that “the use at issue in this case qualifies as a ‘public use’ so as not to offend the Constitution,” and that the Texas Rice reasonable-probability test was “not applicable” to the subject gas utility pipeline.

The TC&C opinion is the first to address an unsettled area of Texas law regarding the evidence of public use required of a gas utility claiming the right of eminent domain under the Texas Utilities Code. Gas utilities will find the opinion useful in resisting discovery of confidential customer contracts and other matters related to the pipeline’s business, as well as responding to jurisdictional challenges regarding the pipeline’s public use.

To read the full opinion, click here.

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