Alert 12.06.16
Alert
Alert
02.23.17
Background
This article is a supplement to our previous note discussing the regulatory regime for the transportation of CO2 across public and private land in the United States and the procurement of rights-of-ways to CO2 pipeline corridors.
In this article, we examine the final decision of the Texas Supreme Court in the Texas Rice II decision1, which provides judicial clarity on the “reasonable probability” public use test that might positively demonstrate that a pipeline owner is a common carrier for the purposes of Texas law.
The Texas Supreme Court clarified key questions regarding the criteria for “common carrier” status.
The issue before the Texas Supreme Court was whether or not CO2 pipeline owner Denbury Green Pipeline-Texas LLC had demonstrated “common carrier” status and was therefore able to rely on Texas law condemnation authority to acquire private land to construct a CO2 pipeline.
Key to this decision was whether or not Denbury had satisfied the “reasonable probability” public use test.
In handing down its final judgment, the Texas Supreme Court clarified the criteria needed to satisfy this “reasonable probability” public use test:
1. When determining whether or not the “reasonable probability” public use test has been met, is the subjective belief or intention of the pipeline owner to serve the public interest relevant or not?
According to the Texas Supreme Court, less focus should be given to the subjective intention of the pipeline owner to build a pipeline that would service the public interest, and more focus given to the objective evidence presented by the parties.2
In Denbury’s case, there was relevant evidence to suggest that Denbury’s CO2 pipeline would serve the public by transporting gas for customers other than Denbury itself.
2. What other factors and evidence are likely to be taken into account when the court considers the “reasonable probability” public use test?
In the Texas Rice II case, Denbury had submitted evidence that it had entered into a CO2 transportation contract with a third party after construction of the pipeline had been completed. This evidence went some way to satisfy the Texas Supreme Court’s “reasonable probability” public use test “that there was a reasonable probability that, at some point after construction, the pipeline would serve the public by transporting CO2 for one or more customers who will either retain ownership of their gas or sell it to parties other than the carrier.”3
Whilst a post-construction contract to transport CO2 is therefore a relevant factor, it alone is not enough. The Texas Supreme Court decision makes it clear that the court will also analyze other factors such as the proximity of, and economic benefit to, potential customers to the CO2 pipeline, and the existence of other CO2 pipelines in the market.
When applying these criteria to the Texas Rice II case, the Texas Supreme Court found that the Denbury CO2 pipeline was the only CO2 pipeline sufficiently close to transport the CO2 of its potential customers, Airgas Carbonic and Air Products. When considered in view of the lack of competing pipelines in the region, the fact that, without the Denbury CO2 pipeline, Air Products contended that it could not have completed its CO2 capture program, and that at least one potential customer, Airgas Carbonic, was to retain title to its CO2, the court agreed that Denbury surpassed the standard that it was “more likely than not” that “at some point after construction” the Denbury CO2 pipeline would serve the public interest.4
3. Is there a threshold for verifying the “public use” element of the “reasonable probability” public use test?
Generally speaking, the answer is no. The Texas Supreme Court in its decision has held that “evidence that establishes a reasonable probability that the pipeline will, at some point after construction, serve even one customer unaffiliated with the pipeline owner is substantial enough to satisfy public use under the Texas Rice I test.”5 No additional analysis was needed to determine the substantiality of the public interest served because the “reasonable probability” test had been satisfied.
Conclusion
While the Texas Supreme Court provided clarity with its decision, the “reasonable probability” public use test, and ultimately whether or not a CO2 pipeline owner has demonstrated satisfaction of other criteria for designation as a common carrier, remains a fact-intensive analysis.
Private landowners affected by Texas law condemnation authority will nevertheless continue to be able to challenge a CO2 pipeline owner’s self-designation as a common carrier.