Valuation Issues 

There are many valuation issues that surround gas pipeline easements.  Below is a short list of the different issues that are discussed below.

  • Damage to Irrigation Systems and Wells (agricultural property)
  • Damage due to Crop Loss (agricultural property)
  • Soil Compaction
  • Utility Corridor
  • Stray Voltage
  • Stigma factors (or Severance)
  • Literature
  • Terrorist Potential

 

Damage to Irrigation Systems and Wells (agricultural property)

Irrigation systems are subject to damage due to the construction of the easement.  This would include the disruption of an above ground "boom" unit which could not operate as designed, thus reducing the proper irrigation of the field.  Below ground units and drainage ditches can be damaged by the pipeline cuts, disrupting the flow of water.  This disruption could cause a damage to the remainder crop yield during the time of construction.  However, damage to the system and crop loss are speculative at best before the actual time of construction.

Eminent Domain typically allows for claims of damage due to the taking, that were not reasonably foreseeable before the taking, to be claimed after the taking and construction of improvements have taken place. 


Damage due to Crop Loss (agricultural property)

Crop loss due to the activity of the taking includes the acreage defined as the Permanent Easement and Temporary Easement.  It is difficult to pre-calculate the actual loss of crops due to the construction schedules being inexact.  The time of the year is an important factor, as is the proper time allotted for construction and environmental restoration.  A guideline duration of crop loss can be obtained from other gas transmission pipeline projects.   

In the State of Wisconsin, there were two recent gas transmission pipelines installed: the Wisconsin Gas Lateral (between Ixonia and Menominee Falls, Wisconsin) and the Guardian Pipeline (from the Wisconsin/Illinois border to Ixonia, Wisconsin). An Agricultural Impact Statement (AIS) was developed for both pipelines.  Wisconsin Gas (now known as WE Energies) AIS document stated that they intend to pay 100% of the crops located in the pipeline easement area for a period of two years.  Guardian Pipeline, independent of WE Energies, also agreed to pay 100% of all crop loss for a period of two years.  Other statements throughout the state and Midwest have used similar time periods.  The most common time period for which the anticipated crop loss is to be 100% is two years.  This time period covers the time of actual construction and time for soil restoration within the easement areas.


Soil Compaction

Soil compaction can be caused by the compression of soil due to heavy equipment and machinery, especially during times of moist soil conditions.  Such compaction can stunt future plant growth.  This concern was the basis for the following statement found in the Guardian Pipeline Agricultural Impact Study. 

"Factors that influence compaction potential include reduced porosity, infiltration, and aeration, all of which are important to root health and plant growth.  Compaction is usually a problem associated with fine-textured soils/or organic rich soils with a high moisture content. . . . .All soils with high moisture content are subject to compaction if heavy loads are applied.   The loads applied during the pipeline construction will compact the soil."

Additionally the statement states, "Compaction and deep rutting can be expected in the construction corridor," and, "If wet conditions exist, the compaction will occur deeper into the soil."  Addressing potential impacts of compaction, the statement comments:

"The greater the depth at which soil compaction occurs, the more persistent it is.  Even one pass of heavy equipment on the soil surface can cause 70% to 90% of the compaction impacts. . . . Axle loads of 10 tons may cause compaction to a depth of 30 inches.

A similar observation was found in the Alliance Pipeline Environmental Impact Statement, State of Iowa, by Professor Michael Duffy, economist with Iowa State University.  In this EIS, Professor Duffy was cited:

". . . pipeline construction may have a long-term impact on crop yields."

When questioned about the economic effect of this long-term crop yield loss, Mr. Duffy was credited with the comment:

". . .based on Minnesota studies, the suggested reduced crop yield can be as high as 25% for ten years or more. . .

Therefore, it is considered reasonable to claim compaction as a damage to the land that the easements cover.  One method to calculate the loss (damage) due to the compaction of the soils in the easement areas, would be using the direct capitalization approach.  Since the loss is, by all accounts, into perpetuity, then this approach would take the total yield loss and capitalize it to obtain a reasonable damage settlement for the soil compaction.  This is similar to answering the question, "what must a person receive in a lump sum payment today to compensate for an $X/acre loss each year thereafter?"  Direct capitalization is the best method to estimate this lump sum amount.


Utility Corridor

Utility corridors have been on the rise as land owners become more reluctant to "give over their land" to new utilities.  Utility companies have responded by planning their easement path along an established utility easement.  A utility corridor is a path of land that starts with one utility, such as an electric transmission line easement, and then has other utilities, such as gas transmission pipelines, water and sewer pipelines, cable lines, etc, running within or alongside the existing easements.  When this happens, a utility corridor is created.  

This view is supported by the authors of the Guardian Pipeline AIS.  They state, "When siting public facilities, preference is given to routes that follow existing infrastructure corridors."  Even the proposed Guardian pipeline will share existing right-of-ways for about 26% of the route as presently proposed.  Further evidence of this potential becoming a reality exists with the ANR pipeline project going through the City and Town of Brookfield, Wisconsin.  There, most of the pipeline followed an existing electric power transmission line easement running parallel to and sometimes within the easement. 

The Federal Energy Regulatory Commission has been cited in many accounts for accepting, and complimenting, utility routes that utilize "other" utility easement routes for siting their easement paths.

Though the reality of this happening is not a fact, as of date, the potential of it happening can prevent buyers from purchasing the property encumbered with such a pipeline easement, or cause them to demand a discount on the purchase price.  Utility corridors are a reality that, when recognized by the market, create market resistance.


Stray Voltage

The presence of stray voltage and its negative effects on the health of a dairy herd, farm animals and (potentially) human beings, has been studied and documented.  Several of the landowners, especially the ones who have animals, are concerned over the potential that the steel pipeline can become a carrier of this stray voltage and affect their farming or dairy operation.  The concern is well-founded, since it has been know for over thirty years that pipelines are and can be carriers of stray current.

"If induced AC current is not grounded adequately, the AC discharge on the pipeline ?can in the long term, cause serious metal loss on the pipe wall and leaks.' (Smart, Osstendorp and Wood, 1999) . . .  This problem has become more acute due to ?the increased tendency to locate pipelines in utility corridors near high-voltage electric transmission lines.'" - Agricultural Impact Statement, Guardian Pipeline, March 1, 2001.

The problem of stray voltage and the harm it can cause to a dairy operation has been recognized in the courts.  In 1999, a jury awarded a dairy farmer $700,000 after deciding "stray voltage from an automated feeding system slashed the herd's milk output and increased the death rate among the Jersey cows (Ad lib., 2001)."  Literature and research supports the position that the steel in the gas pipelines can and does carry electric current, often when the pipeline is within a high power electric line easement, near an electric station or other source of high voltage.


Stigma factors (or Severance)

Damages resulting from perceived market prejudice is sometimes know as "stigma" or "severance" damages.  These perceptions need not be factual to be real. These perceptions drive the view of the potential buyer as to the potential enjoyment or return on investment they may receive in the purchase of the property.  Since it is the job of the appraiser to reflect the actions of the potential market, i.e. buyer, it is necessary to study the actions of these buyers and what they perceive as detractors of value.  Though it is true that the properties affected by a large diameter natural gas transmission line do sell in the market, it may not be true that these properties sell at the same price as a similar property not so affected.


Literature

Recognizing that our media tends to shape our opinions and beliefs about certain matters, we engaged in an information search for what the media is saying about gas pipelines and, more particularly, gas transmission pipelines.  Currently, we have collected and reviewed over 650 pages of articles, news stories, radio/television transcripts and the like, relating to gas pipelines and their safety.  Most articles referred to the perceived dangers of such pipelines, focusing on explosions, tragic stories of injury or loss of life and questions about their safety.  As before, there were some articles that painted a positive picture about the pipelines, however most of these articles were found in special trade magazines relating to the pipeline industry.

In addition to articles and reports mentioned above, we found two congressional hearings, a GAO report and a letter from Congressman Dingell relating to gas transmission pipelines and their safety.  They are:

  • Re-authorization of the natural gas pipeline safety act and the hazardous liquid pipeline safety act, hearing before the Subcommittee on Energy and Power, February 3, 1999. 
  • The Bellingham, Washington, hazardous liquid pipeline incident, hearing before the Subcommittee on Economic Development, Public Buildings, Hazardous Materials and Pipeline Transportation, October 27, 1999.
  • GAO Report to the Ranking Minority Member, Committee on Commerce, House of Representatives, entitled "Pipeline Safety: The Office of Pipeline Safety is changing how it oversees the pipeline industry.  May 2000, report #GAO/RCED-00-128.
  • Letter to the Secretary of the Department of Transportation, Rodney E. Slater, by Congressman John D. Dingell, Ranking Member, in reference to his concerns about the GAO report and pipeline safety.  June 14, 2000.

The hearings, GAO report and Congressman Dingle's letter looked into the safety record and procedures of the pipeline companies revealing disturbing information regarding these issues.  Some of these issues included:

    • The Office of Pipeline Safety is supported by user fees assessed on transmission pipelines paid by the pipeline companies.
    • There is virtually no testing of (pipeline) operators.
    • There are more than 2 million miles of pipeline in the United States and there are 52 inspectors from the Office of Pipeline Safety.
    • For the most part, safety violations and leaks are self reported by the pipeline companies to the OPS.  Trusting the pipeline companies to report all of their safety violations and leaks to the OPS for review and potential penalties, would amount to reporting on yourself.  

Other information that has been obtained by this research was the testimony of Benjamin J. Pooler, II, who is an expert in gas safety issues.  In his letter and testimony, Mr. Pooler brought up some interesting issues regarding natural gas transmission pipelines.  Some of these are:

    • the natural gas in these pipelines have no odor.
    • natural gas is a simple asphyxiate.
    • outside forces and construction account for 50% of all the gas pipeline accidents. (OPS statistics for pipeline accidents, 1994-1997)
    • a 36" diameter natural gas transmission line under high pressure, if exploded, could cause radiant heat to ignite secondary fires within a 1,000 foot radius.

The tragic pipeline explosion in Carlsbad, New Mexico verified Mr. Pooler's observations about the devastating affect a gas transmission pipeline explosion can have on surrounding property and human life.

On December 1st and 2nd, 2003,  the TransCanada's transmission pipeline in Alberta Canada,  showed again the power of a gas transmission line explosion.  This explosion left a heavily timbered area, in a remote part of Canada, leveled to the ground with only a sand- like deposit remaining.


Terrorist Potential

A more recent development relating to gas transmission pipelines is the blackout of information relating to the presence of these pipelines and basic information regarding their size, buried depth, odor, pressure and substance transported.  Prior to the September 11th, 2001, World Trade Center terrorist attack, our office could obtain route maps and details of planned and existing pipelines from the pipeline company.  Now, such information is difficult, if not impossible to obtain.  Contact with the gas utility company requesting such information typically results with them citing "Homeland Security" measures in their refusal to give out such information.  A call to the Homeland Security Office confirms this "security" issue.  It would appear that such pipelines are a potential terrorist threat.  An article, appearing in U.S. News and World Report, cites the difficulties of obtaining natural gas pipeline information.  In the article "Keeping Secrets" (U.S. News and World Report, December 22nd, 2003) a U.S. Army Ranger named Joseph McCormick, a Floyd County, Virginia, resident, was refused any information relating to two natural gas transmission lines by the Federal Energy Regulatory Commission.  The reason he was given was that such information "would provide a road map for terrorists."

In review, it could be said with confidence that the public image of pipelines in not positive.   This image reflects the safety concern of the public, mainly the fear of a pipeline explosion.

Have A Valuation Question?  
Call (920) 233-9836 to talk with our valuation expert