Last October, energy industry firms began gauging interest within Kentucky for construction of a natural gas liquids (“NGL”) pipeline.FN1 Operating under the name Bluegrass Pipeline (“Pipeline”), the new Pipeline will span thirteen counties, and connect to an existing interstate NGL pipeline in western Kentucky.FN2 The purpose of the Pipeline is to transport approximately 300,000 NGL barrels per day from northern Appalachia to the Gulf Coast.FN3
This commentary does not evaluate the numerous environmental, economic, political, and social issues associated with construction of an NGL pipeline. Rather, this piece focuses on the ongoing effort by the Kentucky General Assembly to amend Kentucky’s eminent domain statute to prohibit its invocation in developing the Pipeline.FN4
Pipeline construction requires easements.FN5 Because an easement right is negotiated and transferred privately the involved parties are typically pleased with the outcome. In effect, easements readily illustrate the value and efficiency of free market transactions.
However, the free market is not always availing. If even one easement is unattainable, then implementation of a project can be stalled or terminated. A major reason that easements become unattainable is the holdout problem; if numerous easements are needed and if a landowner waits until he/she is the last (or nearly last) landowner to grant an easement, then he/she can demand an above-market price for the right of easement. This dilemma undermines efficient pricing and can make otherwise economically feasible projects infeasible. To overcome this problem eminent domain is often exercised.FN6
Many easements critical to the Pipeline have been obtained, but the holdout problem is emerging for the remainder. Pipeline developers cite KRS 278.502 (eminent domain)FN7 as applicable here, and will invoke it as “a last resort.”FN8 Pipeline opponents bristle at this notion.
In December an opponent group filed a declaratory judgment action in the Franklin Circuit Court pleading the court to rule the Pipeline ineligible for eminent domain.FN9 As of this writing, the court has not ruled on the motion.
Elsewhere in Franklin County, the General Assembly is pursuing an “emergency” maneuver that may render moot any ruling by the court.FN10 The Senate Judiciary Committee is considering and the House Judiciary Committee has approved an amendment to KRS 278.502.FN11 If enacted, the amendment will preclude eminent domain as a means of building the Pipeline.FN12 The amendment is retroactive to last October—leaving little doubt that it targets the Pipeline.FN13
Whether this legislative machination is viewed favorably or disfavorably is largely irrelevant; what is relevant, however, is the damaging precedent it establishes. For Kentucky to attract economic activity it must be a state with reliable laws; not a state known for retroactively changing its statutes whenever the political winds turn. Eminent domain may not always be the most equitable solution, but its commercial necessity and legal soundness are well established. The General Assembly would be wise to handle this important constitutional and economic principle with care; otherwise the Commonwealth may pay dearly for such capriciousness.
FN1. Press Release, Williams, Bluegrass Pipeline Announces Open Season (Oct. 24, 2013), available at http://www.businesswire.com/news/home/20131024006381/en/Bluegrass-Pipeline-Announces-Open-Season#.UyEG-BZRgsQ.
FN4. Eminent domain is the constitutionally sanctioned taking of private property for “public use” in exchange for “fair compensation” to the party losing the property. There are always legal questions related to whether a specific taking is within the scope of constitutional language. Regardless of how these issues are resolved it does not undermine the historical significance of eminent domain in developing the modern United States; for example, the U.S. Interstate system would have likely been impossible without it. See U.S. Const. amend. V, cl. 4. See also infra notes 6, 9.
FN5. Fact Sheet, Bluegrass Pipeline, Acquiring Easement or Rights of Way, http://bluegrasspipeline.com/wp-content/uploads/2013/08/bluegrass-fact-sheet_acquiring-easements1.pdf, (last visited Mar. 12, 2914) (discussing that an easement grants the right to use another’s real estate for a specific purpose).
FN6. See Richard Posner, Economic Analysis of Law 70-71 (8th ed. 2011).
FN7. Ky. Rev. Stat. Ann. § 278.502 (West 2013) (eminent domain statute).
FN8. Greg Kocher, House Committee Approves Bill that would Keep Bluegrass Pipeline from Invoking Eminent Domain, Kentucky.Com (Feb 26, 2014), http://www.kentucky.com/2014/02/26/3109779/house-committee-approves-bill.html.
FN9. Complaint at 1, Kentuckians United to Restrain Eminent Domain v. Bluegrass Pipeline Co., LLC, No. 13-CI-1402 (Franklin Cir. Dec. 5, 2013).
FN10. H.B. 31, 2014 Gen. Assemb., Reg. Sess. (Ky. 2014); S.B. 21, 2014 Gen. Assembl., Reg. Sess. (Ky. 2014).
FN11. Supra note 7
FN12. Supra note 8.
FN13. Supra note 10.