CHAPTER 10 SETTING A VALUE ON RIGHTS-OF-WAY: KERN RIVER PIPELINE PROJECT

• Jurisdiction: United States

Rights-of-Way How Right is Your Right-of-Way?
(May 1998)
CHAPTER 10
SETTING A VALUE ON RIGHTS-OF-WAY: KERN RIVER PIPELINE PROJECT
William R. Lang MAI,
Brett A. Smith
Lang, Smith and Boice, Inc.
Salt Lake City, Utah

KERN RIVER PIPELINE PROJECT

By: William R. Lang MAI,

Lang, Smith and Boice, Inc.

2350 Phylden Dr.

Holladay, Utah 84117

(801) 273-1444

Fax (801) 273-1480

E-Mail lsb@aros.net

This paper is based on an actual project — a natural gas pipeline for Kern River through Utah. It includes actual case studies of potential damages.

We undertook the right of way appraisals for a major, largely new alignment natural gas pipeline from the Wyoming border through Summit Co. and Davis Counties, and the populated part of Salt Lake County, Utah in the early 1990's. A 36 inch pipeline was to be installed. Through portions of west Salt Lake County, the alignment was to go along an existing Utah Power and Light electric transmission line corridor.

The assignment was to prepare a study addressing appropriate compensation for the proposed pipeline as well as potential damages. We would use this study in appraisals of over 400 parcels of land from grazing use to residential and industrial uses. There were ultimately few condemnations, and all were settled except one which went to a Special Commission hearing.

Pipeline Easement Description

To understand the effect of the proposed pipeline easement, we must first understand which rights of the total bundle of rights are to be acquired. The easement to be used is to be an Exclusive Right of Way and Easement. It carries with it certain restrictions and guarantees.

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For example, the restrictions include the following: the right of ingress and egress to and from, on and along, the right of way. The grantee has the option to put in any sized pipe they desire. During temporary periods, the Grantee may use portions of the property adjacent to the right of way acquired. The Grantor (property owner) may not interfere with the Grantee's surface or subsurface rights or disturb its facilities. No road, reservoir, excavation, change in surface, grade, obstruction or structure may be located within the right of way without the Grantee's prior written consent.

Some of the guarantees made in the easement agreement are: the Grantee will compensate the Grantor for all damages to real or private property. The right of way (ROW) will be restored and shall include final grading, reseeding and installation of erosion control structures. The Grantor reserves the right to use and enjoy the property affected, subject to the restrictions. The pipeline will initially be buried at least 30" deep.

Compensation

The preferred method for determining the value of an easement would be to find paired sales with, and without, similar easements. It is difficult to impossible to find a "paired sales analysis" with similar circumstances to measure the appropriate compensation amount from the market. To do so, we would need to find two sales which are similar in all characteristics, with the exception that one has a 50' wide pipeline easement, and the other has no such easement. Chances of finding such a situation from which to derive an appropriate compensation amount are few. In lieu of market data support, we turn to interviews of market participants who often deal with easements, to understand the practice and custom of this particular industry's precedents (this is the subject of an ongoing controversy which we will address later in the conclusion). We made our first interviews in the late 70's. We interviewed again in the late 80's, and again in the mid 90's so this is a historical continuum. We have also checked the libraries of both the Appraisal Institute (AI) and the International Right of Way Association (IRWA) to obtain the "body of knowledge" available on compensation for rights-of-way, easements, and shared corridors to see if they could shed any additional light on the subject. We have prepared a bibliography outlining

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Historic Trends

In our files, past experience or interviews, we have found the following information on compensation amounts paid for permanent easements in the 1970's and 1980's:

CONTACT	COMPANY/SOURCE	% OF FEE PAID FOR PERMANENT EASEMENT
Tracy Shepherd	Mountain Fuel Supply	50%
Rex Johnson	Northwest Pipeline	50%
Kirk Morgan	Kern River Pipeline	50% to 75%
Max Derbes, Jr.	IRWA Article	50% to 75%
William O. Ewing	IRWA Article	50% to 100%
Foster Lamb	Bureau of Reclamation	25% to 50%
Dean Brown	University of Saskatchewan, BC	30% to 50%
Carl Meyer	IRWA Pipelines Committee Chairman	50%-small diameter 75%-100%-large diam.
Don Zimmerman	Z-Land Services	50%
Jack McDonald	BLM	40%

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periodicals researched for additional support. These were not directly comparable to the subject situation and are included for background information only (see Addendum).

Part of the fee simple interest is lost to the property owner as a result of an easement taken. In an earlier, related study, we had the opportunity to interview several various utilities and ask what methodology had been historically used in determining just compensation for easements acquired.

Tracy Shepherd, retired, former Acquisition Manager with Mountain Fuel Supply Company, explained that they paid a minimum of 50% for easements on any parcel with a significant market value. They paid by the lineal rod for easements in outlying areas. Rex Johnson, when he was with Northwest Pipeline, mentioned an example in Payette, Idaho, where they paid 50% of the fee simple value for commercial and industrial land to be used in conjunction with a new pipeline. They only paid 25% of fee value when adding to the width of their existing right of way.

Utah Power and Light pays up to 60% of fee value.

Max Derbes, Jr., MAI, past president and founder of Louisiana IRWA Chapter 43, wrote an article in the Right of Way Magazine in 2-73 which explained his court experience in this type of easement typically showed a compensation between 50% to 75% of fee value through croplands for transmission lines.¹

Another article in the Right of Way Magazine, dated February 1968,² was authored by William O. Ewing, Jr., Vice President and Regional Manager of Right of Way Associates. His article mentioned that a major pipeline transmission company in the Pacific Northwest States develops a comparable appraisal map prior to establishing the offering price for rights of

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way. Landowners are offered amounts based on 60% of the appraised value. This is for agricultural land, and crop damages are additional.

He said that, normally, compensation for easements ranges from 50% to 100% of the fee value, and consequential damages^* are paid, if any. For non-agricultural land, consideration is given for the loss of potential for development, as well.

Foster Lamb, retired, formerly of the Bureau of Reclamation, said they paid fee simple value for a 1/2 acre area around transmission towers and 25% to 50% of fee for the transmission line easement areas.

Dean Brown, of the University of Saskatchewan, B.C., in a study published in 1-76 said local electric utilities are paid 30% to 50% of fee value for transmission lines.³

In summary, those acquiring pipeline rights historically paid 50% of fee in the 1970's. Some paid 60%, and compensation reportedly went as high as 100%. Transmission line easements were 25% to 75% of fee value. Damages were estimated on an individual parcel basis.

To see if this information was still up to date in late 1989, we interviewed Carl Meyer, who was the Chairman of the International Right of Way Association's Pipeline Committee and Supervisor of the Land and Right of Way Department for ARCO Pipeline Company in Independence, Kansas by telephone. He explained that compensation for a typical easement was based on a percent of the fee simple market value, or on a cost per lineal rod basis. He explained that if the size of the gas pipeline being put in was small, compensation would be 50% of fee value. However, if it is larger, as in this case with a 36" line, compensation should be higher, or 75-100% of fee value in his opinion (damages within the right of way included).

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We also spoke to Don Zimmerman, Principal of Z-Land Services in Huntington Beach, California, on October 3, 1989, who was currently working on the UNICAL pipeline. He had 26 years of experience with right of way acquisition and pipeline easements. He said that he was negotiating land on a cost per lineal foot in his current project, but that if the percent of fee value method is used, 50% of fee is typically paid for the right of way. Damages outside the ROW would be estimated on an individual parcel basis and would be in addition to the 50% of fee amount.

We spoke to Jack McDonald, Chief Appraiser for the Bureau of Land Management for the State of Utah, who told us that at that time there were typically two ways to acquire easements for pipelines: by a percent of fee simple market value or by the lineal rod. The government typically required 40% of fee value. Compensation by the rod is typically used for land with market values less than $1,000/acre. Mr. McDonald said he has heard of compensation for pipeline easements ranging from 40-70%. This would only be attributable to the right of way put under easement, and damages would be an additional amount to be added to this by the judgement of the appraiser, or by negotiation.

This information adds to, and supports the information we had acquired. In our opinion, the appropriate method to estimate the amount of compensation for the right of way is to apply a percent of the fee market value to the easement area. The percent of fee simple value paid should be 50-75% in the late 1980's, typically 50%, in our opinion, plus actual damages caused by construction if...