Brief ⁽¹⁾

HB 2597 would amend the law concerning procedures for condemnation (eminent domain) of underground formations for storage of natural gas and compensation to landowners of property subject to condemnation and migrating gas. The bill includes the following provisions:

Findings of the Kansas Corporation Commission. Under existing law, the Kansas Corporation Commission (Commission) must hold a hearing and make certain findings prior to a natural gas public utility exercising the right of eminent domain to create an underground gas storage facility. One finding the Commission is required to make is a determination that the formation is suitable for underground storage of natural gas. Existing law does not define "suitable for the underground storage of natural gas." The bill defines this phrase to authorize the Commission to determine that a geological stratum or formation is suitable for storage of natural gas upon a finding that the stored natural gas should not migrate to another stratum or formation. (While it is not possible to forecast with 100 percent certainty that stored natural gas will not migrate, the Commission is authorized to make a determination that is a reasonable conclusion.) The bill also would require the Commission to include in its findings the amount of injected or migrated natural gas that was previously injected in an adjacent field, in addition to native hydrocarbons and gas and other findings already required by law.

Compensation to Landowners for Eminent Domain. The bill sets forth the compensation that landowners will be provided by the gas utility in the event that eminent domain is used to take their property. Specifically, in awarding damages, appraisers would have to take into consideration a new set of factors: surface use for roadways, fresh water extractions, pipeline and utility easements, and surface easements for well sites on the property subject to condemnation. Existing law requires appraisers, in awarding damages, to give consideration to the amounts of recoverable oil and natural gas remaining in the property which is subject to eminent domain, as well as to 15 factors that are set out in the Eminent Domain Procedure Act.

The bill also provides that the owner of the property being condemned shall have the option of receiving either a lump sum or annual payments as compensation in the eminent domain proceeding. If annual payments are elected, they must be based on current rates for negotiated leases in the same storage field, if possible. Existing law provides for compensation to assume the form of a lump sum payment and makes no provision for annual payments.

Adjacent Counties. The bill provides that an eminent domain proceeding involving property in two or more counties shall be brought in the county where the greatest portion of the property is located and that the appraisers shall be appointed from among the disinterested residents of any of the counties in which the property is located. Existing law requires that eminent domain proceedings be brought in each county in which the property subject to condemnation is located.

Plat Maps. The bill would require the natural gas utility to file a plat map identifying the location of each underground storage facility with the register of deeds of each county within which the facility is located. Existing law requires that the map only be filed with the Commission.

Rights of Injectors. The bill retains several provisions in existing law that apply to the rights of injectors with respect to natural gas that has migrated outside of the underground storage facility. Specifically, gas injected into underground storage remains at all times the property of the injector; the rule of "capture" does not apply to gas injected into a gas storage facility; the injector will not lose title to migrated gas if the injector can prove by a preponderance of the evidence that such gas was originally injected into the underground storage facility; and the injector may conduct tests at the injector's sole risk and expense to determine the ownership of gas that may have migrated from a storage field.

Compensation for Migrated Gas. The bill describes the compensation that the injector must pay for the prior use of a landowner's property where gas has migrated. Compensation must be based on current per acre rent being paid to other property owners for gas storage in the field from which the gas migrated. The compensation must be limited to the time when the gas migrated to the other stratum, but not to exceed seven years prior to the landowner making a written demand for compensation. The gas injector would be liable for the landowner's legal fees if the compensation granted by the court is 15 percent above the last offer made by the injector within 75 days of the initial filing of the action. Existing law allows property owners to receive compensation for use of or damage to their property. If the property owners must bring suit to enforce their rights and they win, they also may recover their costs and expenses, including reasonable attorney fees. Existing law is less specific than the proposed language in the bill with respect to the terms of compensation.

Exclusive Remedies. The bill provides that the compensation described above is the exclusive remedy for the recovery of damages or compensation in legal action concerning migrated gas. This provision in the bill excludes remedies for trespass or unjust enrichment permitted under existing law.

Conforming Amendments. In two statutes, references to the "owner of an underground natural gas storage facility" are changed to "natural gas public utility" to promote consistency in the Underground Storage of Natural Gas Act.

Background

HB 2597 is the product of a compromise between landowners and the gas storage industry. Amendments to the Underground Storage of Natural Gas Act had been considered in prior years, most recently during the 1999 Session. The House Committee on Utilities passed Sub. for HB 2045 but the bill was never considered by the House Committee of the Whole and was subsequently referred to the Special Committee on Environment for further study. HB 2597, reflecting the compromise between affected parties, was presented to the Special Committee which, for its part, recommended to the 2000 Legislature the bill be introduced and sent to the House Committee on Utilities. The House Committee amended the bill to address concerns about the restrictive nature of annual lease payments to landowners for condemnation of their property and for property where injected gas has migrated. The language related to exclusive remedies was recommended by the Special Committee on Environment but was inadvertently omitted from the introduced version of the bill. The House Committee also amended the bill to require plat maps of underground storage facilities be filed with the register of deeds of each county within which such facilities are located. Other amendments were intended to ensure conformity in terminology.

The Division of the Budget's fiscal note indicates that passage of the bill, according to the Commission, would have no fiscal impact outside of normal operations.

1. *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at http://www.ink.org/public/legislative/bill_search.html