Pipeline Company Use of Eminent Domain

Private pipeline companies can use eminent domain to seize land-use rights for pipelines at one price, deemed fair by the courts, and can turn around and sell those rights at a substantial profit.  Conversely, federal government and some Indian tribes, who by law are not subject to eminent domain, usually do not grant perpetual rights of way. Instead they grant 10-year leases with rights of renewal and charge rent accordingly. Pipeline rights of way are bought and sold on the open market by the linear foot among private pipeline companies.  State law determines just compensation in eminent-domain proceedings.

Rental is advantageous to the landowner and eminent-domain leases are advantageous to the pipeline companies. 

Gas gathering lines are not allowed the right of eminent domain under New York law.

In many states, the courts use a system of "before and after" to determine the value to be paid for the right of way. The courts determine the highest and best use of the land underneath the right of way, then they value the land before the right of way is applied and after it is in place. The difference is paid to the landowner as his "just compensation."

Valuing the right of way in this manner results in an extraordinary double-standard. Because a farmer can grow crops on the land again once the pipeline is in place, the loss to a farmer is deemed temporary and the land is worth, for all intents and purposes, the same before and after. Effectively the farmer receives a pittance for the right of way while the pipeline company enjoys a windfall of economic opportunity.

Clearly, the real value is not in the land but in the economic opportunity the right of way grants to the business entity. How is it "just compensation" that the farmer should be paid a fraction of the acreage value of his portion of the right of way, when anytime after eminent domain the pipeline company could sell the farmer's right of way on a linear-foot basis at a substantial profit?

If s landowners must suffer the indignity of being denied the opportunity to develop their natural-gas deposits in states with fracking moratoria, they should at least be fairly compensated for the economic opportunity taken from them as other states' gas passes through their lands. (WSJ, 4/12/2013)