Whose Land Is It Anyways?

The development of energy resources is typically dependent upon the availability of infrastructure such as hydrocarbon pipelines and transmission lines. Many of the issues concerning energy development and consequently infrastructure construction focus on the impact of climate change generated by a particular energy resource. The continuing controversy over the permitting of TransCanada’s Keystone XL pipeline is a flashpoint in the debate over the development of Canada’s tar sands and its impact on climate change. Likewise, many wind- power advocates champion this use of renewable energy to significantly reduce carbon dioxide emissions and catastrophic climate change.

The issues regarding energy resources and their impact on climate change are paramount to future energy policies. However, there is another significant concern tied to energy/infrastructure development, and that is the associated landowner-eminent domain problem. The movement of energy, whether it is hydrocarbons or electricity, involves infrastructure that is built in large part, on private property. When energy infrastructure is built by private corporations, these entities need to deal with private landowners so that infrastructure can be constructed on their lands. Ideally this is accomplished by corporations and landowners negotiating a fair price for the use of their lands. However, that is truly an ideal world scenario. The reality is that private corporations have lately pushed legislation through numerous state legislatures and court systems to gain the right of eminent domain for their infrastructure projects. The right of eminent domain has historically been used by governments to seize private property for public use and then to fairly compensate the owner for that ”taken” property. However, eminent domain usage for recent private infrastructure projects becomes one where private corporations can take private lands for their private gain. For example, the Montana 2011 legislature passed legislation via House Bill 198 that gives private corporations the right of eminent domain for projects such as nuclear generation and storage, hydro, certain transmission lines, certain major pipe lines, geothermal exploration, transportation links, pump stations and other facilities associated with the delivery of energy that receive permits through the Montana Major Facility Siting Act (see the Concerned Citizens Montana website for background on HB 198 and Geopostings.com for a review on Montana Senate Bill 180, the bill intended for repealing a part of HB 198 during the Montana 2013 legislative session).

In a needed first step for educating the Montana legal and legislative communities about the recent changes in eminent domain law, the State Bar of Montana CLE (Continuing Legal Education) Institute will convene a course on Montana Condemnation Rights on February 14, 2014, at Fairmont Hot Springs, Fairmont, Montana. A link to the course brochure is: MT Condemnation Rights.

The MT CLE course is well balanced in that it contains presentations from many sides of the eminent domain issue. More specific information on the CLE course presentations includes:

–          CONDEMNATION 101—What every real estate practitioner should know about condemnation. An overview of condemnation law in Montana, including condemnation authority, time frames, notices, rights of possession, valuation and attorney fees and expenses. [This element of the program is intended as an overview and not a detailed consideration of the latest developments in Montana law.  However, there should be a brief introduction to the US  Supreme Court decision in Kelo v. City of New London (propriety of using the power of eminent domain for economic development purposes) which placed new focus on the intended scope of the power of eminent domain as well as the Montana response.]  (1 hour presentation by Hertha L. Lund, Lund Law PLLC, Bozeman, Montana.)

–          TAKINGS AND TRANSMISSION— This presentation will explore the range of state laws governing eminent domain authority for interstate transmission lines, particularly those designed to bring renewable energy generated in one state to customers in other states.  It will focus in particular on various state approaches to granting private merchant transmission lines eminent domain authority to build transmission lines, and whether such lines are a “public use” for purposes of meeting state statutory eminent domain requirements.  In addressing these issues, this presentation will discuss the Supreme Court’s Kelo v. City of New London decision, the litigation and legislative activity surrounding the Montana Alberta Tie Line (MATL) project, some historical context with regard to state constitutional and statutory grants of eminent domain to private parties in the West, and the role of “just compensation” in eminent domain disputes involving transmission lines. (1.25 hours presentation by Professor Alexandra B. Klass, Professor of Law, the University of Minnesota Law School.)

–          THE EASEMENT:  PROCESS, TACTICS AND SUBSTANCE- How and what to negotiate to fully protect landowners’ property rights when confronted with the possibility of transmission lines burdening their land. A negotiation/drafting checklist will emerge which prove extremely helpful for any practitioner handling future utility easements. (1 hour presentation by Dennis R. Lopach, Attorney, Helena, Mt.)

–          THE MONTANA BATTLE: LITIGATION/LEGISLATION RELATING TO PRIVATE EMINENT DOMAIN FOR TRANSMISSION LINES AND OTHER CONTESTED CONDEMNATION ISSUES. A debate to highlight the opposing views by lawyers intimately involved in the process. Participants include: Hertha L. Lund (Private Landowners) Lund Law, PLLC, Bozeman, MT and John Alke (Utilities) Hughes, Kelner, Sullivan and Alke, Helena, MT. Each lawyer will be given 30 minutes to present their case in chief. (Total debate time: 1.5 hours.)

–          HOT TOPIC ROUNDTABLE-  A facilitated panel discussion including all speakers will address “Hot Topics” which have emerged throughout the day. (Facilitator:  Brian Kahn, Attorney, Helena, MT. Total Roundtable time is 1.25 hours.)

The potential use of eminent domain by a private corporation, Northwestern Energy, to build a high-voltage transmission line through a southwestern Montana community.

The potential use of eminent domain by a private corporation, Northwestern Energy, to build a high-voltage transmission line through a southwestern Montana community.

Energy Efficiency and Small-Scale Solar Power Threaten Utilities’ Bottom Lines

Power company revenue is under siege by energy efficiency and small-scale solar power, says a Fitch ratings analyst.

Rooftop solar power and energy-efficiency programs will eat into utility revenue and profit margins and discourage investment in new transmission projects within five years, a Fitch Ratings analyst said.

Utilities in stagnant or low-growth markets in the Midwest and Northeast face the biggest losses as more businesses and homeowners install their own generation systems and upgrade to more efficient appliances, said Glen Grabelsky, Fitch’s managing director of utilities, power & gas. Retirees flocking to southern states may offset some losses for local utilities.

This is serious business for utilities as Bill Howley of The Power Line notes:

Fitch is issuing this report as a warning of downgrades to come if power companies don’t step and squash rooftop solar power soon.

The demand loss for grid electricity will be significant as further remarked by Grabelsky of Fitch Ratings:

Loss of demand from customers that go solar or reduce consumption in other ways will shift more and more grid costs onto customers that do nothing. As there are more and more successful Off Grid Solar Projects, traditional grid companies will have to change with the new developments or be left behind. Power supplied by U.S. utilities declined 3.4 percent last year, largely from energy efficiency and on-site solar generation, which reduces demand for electricity from the grid, Grabelsky said.

Unless utility rate structures change, that will reduce utilities’ abilities to invest in major new projects and upgrade their transmission systems, Grabelsky said.

“It will have a negative impact on their ability to raise capital,” Grabelsky said. “Regulators will ask, ‘Do you really need all that new transmission when there’s no demand growth?’ There’s the potential for stranded assets.”

A recent study by the Edison Electric Institute (EEI), “Disruptive Challenges – Financial Implications and Strategic Responses to a Changing Retail Electric Business”, basically reiterates Grabelsky’s view of the threat to utilities by energy efficiency and distributed energy generation. The report details corporate utilities’ angst regarding their customers’ shift to go solar and reduce demand for grid electricity. Many are switching over to prepaid energy plans for their grid electricity, which is a greener option and more cost-effective to manage. With fewer people deciding to have a look for certain types of grid electricity, they are less likely to be overcharged by their utility company, which is good news for the customer.

How will utilities compensate for the loss of demand? Howley, in his “The Power Line” blog, gives a good response:

This translates into: do away with net metering and charge higher rates to people who install solar panels and invest in efficiency.

John Vincent, a former Montana Public Service Commissioner (PSC), in a recent op-ed in the Bozeman Daily Chronicle, calls the shift away from using corporate grid electricity the “new energy paradigm”. As Vincent explains:

A new paradigm is grabbing hold in the residential, commercial and public sectors of our economy. That is: local distributed or “on site” electrical generation and consumption (wind, solar, small scale hydro, biomas, geothermal, micro turbines, combined heat and power systems etc.) conservation, efficiency and smart-grid technologies (to increase the efficiency and capacity of existing electrical transmission systems rather than of building costly new ones at rate payer expense).

But, as Vincent cautions us:

The new energy paradigm is, for obvious reasons, being met with strong resistance by those who benefit from the status quo. Unfortunately, these self interests still carry a lot of political clout, witness recent Montana legislative sessions.

The “new energy paradigm” is a model that we must embrace. We need to get people and politicians to move on this.

Blog Postscript – Former PSC Commissioner Vincent adds the following clarification on the EEI study mentioned above:

The Edison Electric Institute is Big Power’s number one ally and voice (funded and supported by Big Power) and so their own consultant has: 1. Clearly identified Big Power’s dilemma and, 2. Recommended ways to beat back the new paradigm and maintain the status quo…… at rate payers expense. I think the recommendations cited in the consultant’s report can be boiled down to raising rates (one way or another) to offset the loss of revenue brought about by on site, distributed generation and improved efficiency.

In other words, Big Power will do everything they can to make us (rate payers) pay for distributed energy and efficiency……..the new paradigm, not their stockholders.

Eminent Domain in Montana – The Montana House Fails Landowners

Now that the Montana legislative session is over, here is my tally is on what landowners got out of the session regarding private property rights and specifically those rights related to merchant transmission lines:

–          HB 417: this bill requires that a condemnor provide landowners a final written offer prior to initiating a condemnation complaint. This is helpful to landowners because condemnors often manipulate offers before a final award for damages and this can adversely affect the determination of the prevailing party for reimbursed attorney fees. This bill passed the Legislature on 4/24 and was signed by the Governor on 5/1.

–          HB 45: this bill requires that the current Environmental Quality Council handbook on eminent domain be included in the condemnation complaint. This booklet may provide landowners with some information relative to their rights under Montana law. This bill was signed into law by the Governor on March 28.

All in all, not much for landowners came out of this past session, and nothing was really gained for landowners regarding private property rights in relation to merchant transmission lines. SB 180, a bill that would have repealed the power of eminent domain granted to private, for-profit corporations via the Major Facility Siting Act (MFSA), made it through the Senate and then was tabled in the House Federal Relations, Energy & Telecommunications Committee. Leesa Zalesky, of Western Ag Reporter, wrote a good summary of what happened to SB 180 during the session, and I’ve included it below. There are a couple of points in Leesa’s article that are slightly in error, such as HB 198 was more related to a patch for MATL (Montana-Alberta Tie Line) than explicitly written for MSTI, and the extent of an HB 198 repeal via SB 180, but at least there’s information about what happened to SB 180 out in the media. It is also important to note that SB 180 was traded for HB 417 by some House legislators/lobbyists, and that became a major obstacle in trying to get SB 180 through the House.

Here’s Leesa’s article:

Montana House Fails Landowners

By Leesa Zalesky – published in Western Ag Reporter, May 2, 2013

When the Montana legislative session ended last week, Senate Bill 180 — sponsored by Senator Debby Barrett, a Republican from Dillon, MT — died for lack of a champion in the Montana House of Representatives. SB 180 would’ve restored landowner protections and private property rights by repealing the expansion of eminent domain powers granted through last year’s passage of HB198.

Eminent domain is the power to take private property necessary for public use, a power typically held by the individual states and the federal government. Readers will remember that, during its previous session, the Montana Legislature passed the highly contentious HB 198, which delegated the power of eminent domain to an entity or a person issued a permit by the Montana Department of Environmental Quality (MDEQ). The controversy over the bill surrounded Northwest Energy’s planned Mountain States Transmission Intertie (MSTI), a 500 kV electric transmission line that would extend from Townsend, Montana, through the Whitehall and Butte areas south along the Interstate 15 corridor to a substation in south-central Idaho, a route that involves a great deal of privately owned land.

The passage of HB198 left Montana landowners vulnerable to private property takings whether the land usage would be related to the public good or private use. SB180 would have protected landowners’ rights and would have ensured they received procedural and constitutional protections for private property. SB180 would NOT, as some opponents claimed, have brought development in Montana to a screeching halt, and utility companies like NWE and rural electric cooperatives would have been able to construct distribution power lines. It would have, however, protected private property rights in the process.

SB180 passed through the Montana Senate on February 27 in a 28:22 vote. But when it arrived in the House, the bill was assigned to the House Federal Relations, Energy & Telecommunications Committee (FRET) on March 27, essentially a political strategy to kill the bill. Knowing the FRET Committee would be unfriendly to the bill, SB180’s original sponsor asked House leadership to route the bill through the House Natural Resources Committee, but the request was rejected, and sure enough, the bill was promptly tabled by the FRET Committee. Proponents of the bill were unsuccessful at blasting the bill out of the FRET committee (60 votes are needed for a successful blast), and the bill simply died when the legislature adjourned. Rob Cook — a Republican from Conrad, Montana, and chair of the legislature’s Joint Appropriations Subcommittee on Long-Range Planning — was one of the most vocal opponents of the bill. In fact, supporters of the bill found not one single champion on the Republican side of the House, where they expected to find their strongest support.

Deb Hanneman, PhD, is a landowner and geologist who lives near Whitehall, Montana. Hanneman is a member of Concerned Citizens Montana, a group that fought HB198 last year and supported SB180 during the latest legislative session. Hanneman, who worked the Montana legislature seeking support for SB180, summed it up: “A lobbyist that has been in Helena for decades pulled me aside during the last part of this session and told me,”You need to understand that Anaconda Company, then Montana Power and now Northwestern Energy, have owned the Montana legislature since day one. They found it easier to control 150 people in a confined space than to deal with people spread all over the state. You’re just beating your head against the wall trying to get your vote through.”

 

Montana Senate Bill 180 Goes To The House

Montana rural landowners are gearing up to push Senate Bill (SB) 180 through the Montana House. SB 180 will repeal the power of eminent domain granted via the Montana Major Facility Siting Act (MFSA) as legislated in the 2011 session under House Bill 198. I’ve spent much time since the last Montana legislative session delving into how eminent domain law in Montana was changed by the enactment of HB 198 and also dealing with the potential impact of this on rural landowners.

I view this change in eminent domain law as largely a decision that favors economic development in rural areas being done at the expense of landowners. That may be a decision that the Montana legislature ultimately agrees upon, but it was a decision that did not result from an honest, open debate during the last legislative session. I think that this type of decision is best done via an interim study that incorporates input from a diverse set of Montana citizens.

However, for the moment, I think that SB 180 sets us on the path for a meaningful debate on how to handle eminent domain and merchant transmission lines. SB 180 will pull the power of eminent domain out of MFSA, and this first step is essential to take before any meaningful debate can occur. I say this because MFSA is basically an environmental review process that does not contain any vehicle for determining the facts necessary for condemnation, yet it gives the successful applicant the power of eminent domain. MFSA has also become more a political process than true environmental review process as evidenced by the fact that out of 37 projects proposed during the lifetime of MFSA, only one project has not been granted a certificate of compliance.

Additionally, I believe that the eminent domain power conferred via MFSA opens the gate for a variety of other energy facilities, in addition to the merchant transmission lines that have been central to most of the legislative debate on this issue. The power of eminent domain will go to any “person” who is granted a certificate of compliance for the following projects:

1. Nuclear (generation and storage: MCA 75-20-104 and 75-20-1202), hydro (MCA 75-20-104 and 75-20-204), and geothermal (MCA 75-20-104 ) energy generating facilities,

2. Certain transmission lines (MCA 75-20-104),

3. Certain major pipe lines (MCA 75-20-104),

4. Geothermal exploration (MCA 75-20-104),

5. Transportation links, pump stations and other facilities associated with the delivery of energy (MCA 75-20-104).

Some of the listed projects above requiring a MFSA Certificate are expressly identified as a public use in the Montana eminent domain statute 70-30-120, but others are not identified in this manner.  That means entities can be granted the power of eminent domain for projects that are not considered a public use. This is further evidence that use of the MFSA to delegate eminent domain was not fully considered.

Obviously the focus of last session’s HB 198 and the current session’s SB 180 is merchant transmission, but the questions of public uses and whether or not an entity must expressly be granted the power of eminent domain should be resolved given the variety of facilities that are still covered under MFSA and could be built using eminent domain. With no large impending projects looming under MFSA, we have time now to have a true public debate on these questions. This time we should do it correctly, and the goal of SB 180 is to start us on that path.

I’ve been asked how we can proceed with building merchant transmission lines as we sort this out. First of all, it is important to remember that many other kinds of entities, including various types of power companies, have existing authority to condemn property for construction of power lines in statute that is unaffected by SB 180: including the State of Montana, Municipal Utilities, Rural Cooperative Utilities and Public Utilities.

For building “merchant lines” specifically, there are currently a few options:

—–Use federal energy corridors that were established by several federal agencies in eleven Western states expressly to expedite the construction of high voltage transmission lines (established under the Energy Policy Act of 2005),

—– Bury high voltage direct current transmission lines in state highway and/or railroad right-of-ways,

—-The private, for-profit company can negotiate with a landowner for a true business partnership. This could include yearly royalties per tower, a fair one-time payment, or some other actual business partnership arrangement.

Montana citizens and legislators need to get behind SB 180 and get it to the governor’s desk!

Montana’s Legislative Response to Secretary Chu’s Use of Power Marketing Administrations to Upgrade the Electric Grid

Last Saturday, the Montana Senate unanimously adopted Senate Resolution (SR) 2 in response to the Department of Energy (DOE) Secretary Steven Chu’s March 16, 2012, memorandum that outlined his plan to upgrade the electric grid using power marketing administrations. The plan would utilize the nation’s four power marketing administrations (PMAs) – the Bonneville Power Administration, Western Area Power Administration (WAPA), Southeastern Power Administration and Southwestern Power Administration to transition to “… a more resilient and flexible grid”  (Joint Outreach Team Draft Recommendations, pg. 4) and to create more cooperation among system users. As envisioned in the 3/16 memorandum, this would be achieved by:

1. WAPA and Southwestern joining with third parties to develop needed transmission,

2. The PMAs creating rate structures that provide incentives for energy efficiency, demand response, integration of renewables, and prepare the grid for electric vehicle deployment,

3.The PMAs partnering with all owners and operators of the grid to improve grid reliability, and

4. The PMAs working with Congress to help streamline the complex regulatory system that governs them.

The Chu memorandum has generated much controversy. The National Rural Electric Cooperative Association (NRECA) quickly jumped into the fray and contended that under Chu’s plan, most of the upgrade costs would be borne by local energy users. Thus, customers’ power bills could dramatically increase to pay for the new grid system.

NRECA’s concerns hit home in Montana because WAPA is taking the lead in Chu’s plan and WAPA is a primary PMA for that part of Montana east of the continental divide. This means that several of the Montana electric cooperatives get their federal allocations from WAPA and utilize WAPA transmission. Consequently, the cooperatives have been very vocal about the potential negative impact of the Chu plan on their customers’ future rates.

DOE and WAPA formed an initiative called “Defining the Future” and a Joint Outreach Team (JOT – a joint team of experts from WAPA and DOE) in response to Chu’s grid upgrade plan. Hearings about the initiative were held in six locations throughout WAPA’s territory during the past summer. Rural electric cooperative reps showed up at the Billings, Montana hearing, and all expressed apprehension about the potential of increased rates. The JOT draft recommendations were published in late November 2012. Of note are some changes that the JOT made from the Chu plan –  … “the JOT decided not to pursue any recommendations specifically targeted at energy efficiency, demand response, or electric vehicles. Further, a number of the areas addressed through the recommendations are considered on a regional basis…” (JOT Draft Recommendations, pg. 5).

This brings us to the start of the 2013 Montana legislative session. JOT representatives gave a brief summary of their draft recommendations to a combined Senate Committee on Energy and Telecommunications and the House Federal Relations, Energy, and Telecommunications Committee during the session’s first week. This allayed some concerns, but SR 2 was still introduced the next week, which according to Montana Senator Olson at the 1/17 SR 2 hearing, “stems from communications between the Montana Legislative Interim Energy and Telecommunications Committee and DOE”.  Senator Olson further noted during the hearing that WAPA and DOE had recent meetings regarding the future of transmission needs in this part of country, but that none of the policy was communicated to the Montana legislature. A letter from the Senate Energy and Telecommunications Committee was sent to DOE about the lack of communication, but Senator Olson characterized DOE’s response as “snarky”. Thus, SR 2 was crafted in order to make sure that DOE received the Senate’s remarks on the initiative by the close of the comment period on 1/22/2013.

It will be interesting to see what happens with the initiative and SR 2, but this all is reminiscent of the last Montana legislative session and the hearings on HB 198 (the bill that granted the power of eminent domain to many a corporation). Several of the same concerns, including increased power rates and lack of notification, were raised during these hearings. What goes around comes around.