By Cantey Hanger Partner, Mary Barkley.
This article, written December 9,2016, appears in the Fort Worth Business Press.
The Dakota Access Pipeline, a project funded by Dallas-based Energy Transfer Partners and its subsidiary, Sunoco Logistics Partnersk, and the Keystone XL Pipeline, a project funded by TransCanada, both historically opposed by the Obama administration, are likely to gain support from the Trump administration. Perhaps in anticipation of this, the companies behind the Dakota Access Pipeline took legal action in November seeking federal court intervention to move forward with the project.
President-elect Donald Trump has displayed robust support for energy infrastructure projects, specifically oil and gas pipelines. The federal government’s role in pipeline infrastructure is generally limited to pipelines that cross state lines (interstate pipelines) and pipelines that cross federally owned or federally protected property.
The Texas Railroad Commission generally regulates intrastate pipelines, which are those transporting oil or gas or associated products within the state. While the federal government (Department of Transportation’s Pipeline and Hazardous Material Safety Administration, acting through the Office of Pipeline Safety) makes the laws regarding all pipeline operation, safety, security and monitoring, the Texas Railroad Commission is generally responsible for regulation, inspection and enforcement of the federal and any additional state safety rules.
If the Trump administration were able to work with Congress to loosen the safety and environmental regulations on the oil and gas industry at a federal level, the door for Texas to do the same would be opened because the federal rules merely set the lowest standards the state must meet. When it comes to acquiring property for pipeline projects, however, Texas laws have been considered stricter than the federal rules and we may not see any lifting of those particular regulations and laws as a result of the Trump presidency any time soon.
In 2012, the Texas Supreme Court, in Texas Rice Land Partners Ltd. versus Denbury Green Pipeline-Texas LLC, (Denbury I), evaluated whether a pipeline company could qualify as a “common carrier” pipeline, which is granted authority to take private property in Texas under the threat of eminent domain. The court determined that the Texas Railroad Commission’s permit to the pipeline company was not conclusive evidence of the company’s power of eminent domain. Rather, in order to establish its eminent domain power, the pipeline company had to show, in court, “a reasonable probability … 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.”
The Texas Supreme Court then sent the case back to the trial court to evaluate this issue. Interestingly, the opinion in Denbury I was written by Justice Don Willett, who has been on President-elect Trump’s list of potential U.S. Supreme Court nominees.
The case is back before the Texas Supreme Court in Denbury II, which was argued Sept. 15, 2016. The question before the court is how the pipeline company can show it intended that the pipeline would serve the public and transport gas for others. The landowner argued that what is most important is what the pipeline company represented to the public before condemnation regarding its plans for the pipeline. The pipeline company argued that a contract entered into after the property was condemned indicates its intent to ship another company’s gas at the time of the condemnation. If the Texas Supreme Court agrees with the landowner in Denbury II, as it did in Denbury I, it may cause some challenges to pipeline companies in otherwise energy-friendly Texas.
In the short term, the Texas Supreme Court’s opinion in Denbury II will have more impact on oil and gas pipeline infrastructure in Texas than Donald Trump’s presidency. In the long term, however, in light of the Republican majority in Congress, safety and environmental regulations on pipelines likely will be loosened, which, at minimum, will decrease the costs of pipeline projects. Certainly, those in the energy industry are optimistic about what is to come under the Trump administration. Texans should also watch what is happening in the Texas Supreme Court.
Mary Barkley is a partner in Cantey Hanger LLP’s commercial litigation section and focuses on eminent domain law, real estate litigation and appellate law. She can be reached at 817-877-2889, mbarkley@staging.poised-team.flywheelsites.com