Oil and gas pipeline companies’ ability to use Ohio’s eminent domain laws to acquire construction rights-of-way were recently the subject to two Ohio court decisions with very different outcomes.

In a highly publicized ruling, the Court of Common Pleas of Wood County, Ohio ruled in Kinder Morgan Utopia, LLC v. PDB Farms of Wood County, LLC, et al., that Kinder Morgan could not appropriate right-of-way for its proposed Utopia pipeline, which would begin in southeast Ohio and run across northern Ohio, including Wood County, before terminating at a plastics facility near Windsor, Ontario, Canada. The transportation of natural gas through the Utopia pipeline was for the sole benefit of the end user and there was no access to pipeline capacity for third parties.

In contrast, approximately two weeks prior to the Kinder Morgan decision, the Seventh District Court of Appeals upheld a ruling from the Court of Common Pleas of Harrison County authorizing the appropriation of pipeline right-of-way. In Sunoco Pipeline L.P. vs. Teter, 2016-Ohio-7073, the court upheld the use of eminent domain for Sunoco’s proposed Mariner East 2 Pipeline. That pipeline would originate in Scio, Ohio and run to Marcus Hook, Pennsylvania, and eventually Delaware.

In Ohio, a company may use the appropriation statute when the entity is a common carrier and the proposed taking serves a public use. Additionally, the nature of the product to be transported and the pipeline company’s status as a “Common Carrier” must pass statutory muster. The varied public use analysis in these cases is the most interesting aspect and will be the focus of this entry.

The Kinder Morgan court determined that the pipeline would transport gas to Canada for the benefit of a single private enterprise engaged in the production of plastics. The plastic products manufactured were not for the benefit of Ohioans, the pipeline did not provide common carrier access to third parties, and the movement of the gas into Canada did not serve the state’s public interest or that of its residents.

The court stated that Ohioans enjoy little-to-no economic benefit from the proposed transmissions of gas. However, even an economic benefit to the state may not have changed the outcome. The judge is careful to point out that under the analysis of Norwood v. Horney, 110 Ohio St. 3d 353, “economic development” alone is insufficient to fulfill the public use necessity.

Conversely, the court in Sunoco found that the pipeline would serve a public use. The court highlighted that the pure propane and butane, the fuels to be transported in the Mariner East 2 Pipeline, could be used to heat homes and help automobiles start in cold winter months. And although there are no “off ramps” to the pipeline within Ohio’s borders, the court would not assume that (1) there will never be off ramps within Ohio, and (2) the benefit of the fuels transported by the pipeline will not come back to Ohio.

Additionally, the pipeline’s public benefit stems from the allocation of a portion of its capacity for the use of the general public. Ohioans can take advantage of the increased pipeline capacity in the region if they have that ability.

Finally, and perhaps most important to the decision, the court found that pipeline capacity was essential to the further development of the Utica and Marcellus deposits. Current pipeline capacity is insufficient for the complete development of the massive eastern Ohio reserves. Further pipeline construction is required for the continued development of Ohio Shale play.

These decisions illustrate the regionally varying attitude toward development. The Harrison County Court, situated in the heart of the Utica play, may well be influenced by the development of the Shale reserves, millions of dollars of bonuses, royalties, and employment opportunities available to local residents. Whereas the affected residents of northwest Ohio would benefit only from the comparatively small right-of-way lease payments.

Even with the varied economic benefits to their respective regions, the courts’ rulings ultimately turn on the destination and contents of the pipelines. In Kinder Morgan, the gas transported would, at least initially, be entirely for the benefit of manufacturing outside of Ohio. In Sunoco, the gas would be used as heating and fuel additives, both of which are essential to Ohio. Because these decisions are so fact-dependent, they do not appear to contradict one another to the extent that the Ohio Supreme Court will need to consider the discrepancy.