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Item 4CM E M O R A N D U M September 10, 2008 To: Shana Yelverton, City Manager From: Ben Thatcher, Assistant City Manager Subject:Resolution No. 08-049 Addressing Local Regulatory Oversight of Gas Pipelines. Action Requested: Approve Resolution No. 08-049; Opposing the Continued Preemption of Municipal Regulation of Certain Intra-State Gas Utilities and Urging Legislative Action to Permit Greater Local Regulatory Oversight. Background Information: The Town of Dish, TX has passed a resolution asking the Texas State Legislature to allow for greater local oversight of intra- state gas utilities. They have asked other municipalities to pass the same resolution, in which they will then submit all the resolutions to the Texas State Legislature. The companies they are referring to in the resolution are not typical public utilities that deliver a product to the consumer, but transport natural gas for the benefit of the production companies that they are affiliated with. However, currently these companies have greater powers than typical public utilities, or even municipalities. Further, these companies refuse to collaborate in the coordination or utilization of other producers’ pipelines in the region. Instead these companies prefer to install their own redundant pipelines enforcing eminent domain on property owners. For those municipalities who have no requirement for these companies to map the pipeline route, they are not even required to notify the municipality of the installation. The possibility of having several redundant pipelines crossing our municipal boundaries can potentially ruin any opportunity for future economic growth of those areas. When easements for these lines are forcibly taken through threats of eminent domain, they are permanent, and therefore, the future land use is limited. Basically, it will be permanently used as limited agricultural use land only. While in some instances the land may not be ideal for other uses, these companies take the shortest and least expensive route, not taking into consideration the comprehensive plans set by the municipality. Therefore, we might find one of these pipelines going through areas that are planned commercial or residential areas, destroying future growth. Developers will then have to work around the pipeline easements when constructing homes and businesses. Financial Considerations: N/A Citizen Input/ Board Review: N/A Legal Review: The Dish resolution was written by Bryn Meredith, a TOASE attorney, who also helped the City of Southlake rewrite the oil and gas ordinance. Alternatives: As part of the upcoming legislative session it is the City’s intent to also address this issue as part of its legislative agenda. Hillco is aware of our participation on this resolution, and sees no problem in doing so. Supporting Documents: Attached is the resolution for consideration as well as some recent news articles about the subject. Staff Recommendation: Approval of Resolution No. 08-049. RESOLUTION NO. 08-049 A RESOLUTION OF THE CITY OF SOUTHLAKE, TEXAS OPPOSING THE CONTINUED PREEMPTION OF MUNICIPAL REGULATION OF CERTAIN INTRA-STATE GAS UTILITIES; URGING LEGISLATIVE ACTION TO PERMIT GREATER LOCAL REGULATORY OVERSIGHT; AND PROVIDING AN EFFECTIVE DATE. WHEREAS, the City of Southlake, Texas, is a home-rule municipality acting under its charter adopted by the electorate pursuant to Article XI, Section 5 of the Texas Constitution and Chapter 9 of the Local Government Code; and WHEREAS, the Legislature has vested regulatory authority in the State and has largely preempted the local regulation of so-called “midstream” intra-state natural gas pipeline utilities (“gas utilities”) on the basis that such companies are affected with a public interest; and WHEREAS, the preemption of local regulation constrains the ability of the public to participate through their locally elected officials to tailor policies to meet their needs and demands; and WHEREAS, with the recent development of mineral reserves within the Barnett Shale, oil and gas operators have become dependant on a comprehensive pipeline infrastructure to deliver the produced hydrocarbons to market; and WHEREAS , in order to ensure the maximum profitability of natural gas production, oil and gas operatorshave refused to cooperate with unaffiliated third party gas utilities or coordinate pipeline efforts with other producers in the region and instead are each opting to form their own affiliated gas utility company; and WHEREAS , each gas utility company serves not as a public-minded “utility” accepting produced hydrocarbons from “competing” operators but operates exclusively as the alter ego and servant of the utility’s affiliated oil and gas operator greatly blurring the line between gas utility and oil and gas operator; and WHEREAS, the numerous gas utilities, frequently managed and exclusively operated by the affiliated oil and gas operators’ own employees, work aggressively to install a network of permanent gas lines across private property creating extensive “no- build” zones many dozen feet in width and many miles in length, with little regard for the availability of existing unaffiliated pipelines in the vicinity; and WHEREAS, in order to rapidly accomplish the installation of duplicative and redundant pipeline networks, local citizens and business owners are quickly threatened with eminent domain proceedings by the gas utilities and are intimidated into executing one-sided permanent easements for nominal consideration; and WHEREAS, the proliferation of duplicative and redundant pipeline networks, installed with regard only for the shortest and most cost-effective route, causes the unnecessary fragmentation of land and the creation of unusable slivers, chipping away at the long term economic potential of the land; and WHEREAS , municipalities, rendered virtually ineffective by the preemption language of §121.202 of the Texas Utilities Code, are unable to respond to the plight of their constituent citizens and business owners and are without the necessary authority to safeguard the long-term economic viability of the region. NOW THEREFORE, BE IT RESOLVED BY THE CITY OF SOUTHLAKE, TEXAS THAT: SECTION 1. The City Council of the City of Southlake, Texas, respectfully requests and urges the Legislature to revisit the prudence and continued appropriateness of preempting municipalities from regulating the practices of midstream gas utilities and respectfully requests that the Legislature confer additional regulatory authority upon municipalities over the activities described herein in order to safeguard the interests of the public and the long term economic viability of private property. SECTION 2. This Resolution shall be effective from its date of adoption. PASSED AND APPROVED ON THIS ____ DAY OF ___________, 2008. ________________________________ MAYOR ATTEST: ________________________________ CITY SECRETARY EFFECTIVE: _____________________ DISH moves to shield itself from rising number of Barnett Shale pipelines I Dallas Morning News I New... Page 1 of 2 DISH moves to shield itself from rising number of Barnett Shale pipelines 12:29 PM CDT on Saturday, July 19, 2008 By PEGGY HEINKEL-WOLFE / Denton Record-Chronicle pheinkel-wolfs dentonrc.com DISH - Quiet country roads crisscross over miles of buried, high-pressure gas pipes that converge at the south end of this Denton County town, where several energy companies operate compression plants. DISH officials liken the area to the Grand Central Station of the Barnett Shale. But an emerging practice by energy companies - using eminent-domain power to build multiple, redundant pipelines across properties between the gas wells - has DISH officials and other Barnett Shale cities concerned. DISH Town Commissioner William Sciscoe, who has leased his mineral rights, has become increasingly frustrated by the companies' practice of digging through people's yards and driveways. "It's been heart-wrenching," Mr. Sciscoe said. "People have no say, no recourse. There are high-pressure pipelines, literally, under their toes in their front yards and driveways." In Copper Canyon, Mayor Sue Tejml said officials have become concerned, too, as pipeline construction rushed in behind the drilling of several new horizontal wells there. Energy companies have discovered they can create a gas utility - with the power to condemn property - and install their own lines, according to DISH's town attorney, Bryn Meredith. These midstream companies, even though they compete with one another to get the gas to the market, have the same power over private property as a public utility. Mr. Meredith said that reading the statute makes him question whether the Texas Legislature intended private energy companies to have the same eminent-domain power meant for public utilities. "I don't think the development of the Barnett Shale was anticipated and that the law was meant to give midstream companies this type of power," Mr. Meredith said. DISH Mayor Calvin Tillman said the fury of Barnett Shale activity has all but doomed future economic development in his town. Many properties have long, wide easements across them. One local developer struggled to draw lots for his subdivision in order to work around the easements. Mr. Tillman is afraid what's happening in DISH could happen to many other Barnett Shale cities, "especially the small ones.". So DISH officials decided to take the lead, passing a resolution this week asking the Texas Legislature for help in regulating pipelines. They are mailing copies of the resolution to all the Barnett Shale cities and asking them to pass it, too. http://www.dallasnews.com/sharedcontentldwsldnllatestnews/stories1071908dnmetdish.3 c6Ob45.html 7/21/2008 DISH moves to shield itself from rising number of Barnett Shale pipelines I Dallas Morning News I New... Page 2 of 2 Mr. Tillman said he plans to travel to as many of the cities as he can - he estimates there are 100 - and speaking directly to their councils. Some cities have already passed resolutions challenging pipeline company operations within their boundaries. They include North Richland Hills, Southlake and Mansfield, Mr. Meredith said. But DISH's resolution asks the Legislature to give cities the authority over midstream pipelines so they can better plan for their residents' future, he said. Crosstex Energy Services, one of the few independent midstream companies in the Barnett Shale, must compete with the midstream companies being formed by other energy companies. Crosstex spokeswoman Jill McMillan said the company has tried to work cooperatively with cities and property owners. Being able to move the gas to market quickly and efficiently pays off in lower energy prices for the consumer, but Ms. McMillan acknowledged that the underlying property issues were complex. "DISH is sticking their head out for this," Ms. McMillan said. "But maybe we'll all be stronger at the end of the day for it." http ://www. dallasnews. con/sharedcontentldwsldnllatestnews/stories1071908d=etdish.3 c6Ob45.html 7/21/2008 Dish takes on Tommy Lee Jones I Denton Record-Chronicle I News for Denton County, Texas I Opinion:... Page 1 of 2 I Editot3.als Dish takes on Tommy Lee Jones 12:50 AM CDT on Sunday, July 20, 2008 The Law of Unintended Consequences is in force throughout the Barnett Shale, the vast sea of natural gas that bubbles just beneath the surface of Denton County and much of North Texas. Our neighbors in the small community of Dish have just stumbled onto another clause in this thorny law, and they're trying to get an amendment. We wish them well. 4F,*l~°,pc~~ntmi: ~P~P£its.nf±hPR~xn?tt~h?lerh?u~1~r•~.me_eyicLent~yer~tl~~~~~~ ~;~~,P,~~~3s~.,,~~,h~,z~~+hP.rL~rxth~►.s.~.,, though at a much slower pace. Landowners have enjoyed the money they've received for leasing their mineral rights to one of several gas exploration companies that have descended upon the area since spiraling natural gas prices made it economically feasible to drill for it in the stingy sedimentary shale of North Texas. The down side has been noisy trucks that damage rural roads and raise clouds of dust, noise and light pollution caused by wells that run 24 hours a day, pristine land littered with pipes, machinery and the other abandoned detritus of drilling operations, and the contamination of groundwater by the. noxious sludge that is used to crack open the shale and free the precious gas. The residents of Dish have run afoul of another Unintended Consequence. Exploration companies have to be able to move the gas from the wellheads, and for that they need pipelines. Dish Town Attorney Bryn Meredith told the Record- Chronicle's Peggy Heinkel-Wolfe that the companies have discovered if they form a gas utility company, they suddenly have the power of eminent domain to obtain easements across the land of anyone in the proposed pipeline's path. Dish town commissioner William Sciscoe is not unappreciative of the benefits of Barnett Shale development - he has . some mineral leases himself - but he is shocked and saddened at what he sees happening in Dish to his neighbors who have no way to fight having their land dug up for pipelines. "It's been heart-wrenching," Sciscoe told Heinkel-Wolfe. "People have no say, no recourse. There are high-pressure pipelines literally under their toes in their front yards and driveways." Dish Mayor Calvin Tillman has found an even greater long-terns threat: Developers are wary about planning projects in an area that might become a target for a gas pipeline easement claim. Meredith, the town attorney, doesn't believe the Legislature had jury-rigged gas "utility" companies in mind when it granted eminent domain rights to established utility companies, so he's drawn up a resolution asking lawmakers to somehow rein in rapacious pipeline construction by these hastily formed "utilities." Tillman says he's going to circulate the resolution among other cities in the Barnett Shale and urge them to pass it, too. It will be interesting to see how Tillman, Sciscoe, Meredith, et al, fare against the forces of Big Gas. Exploration companies enjoyed a brief honeymoon in North Texas during the early days of the gas boom, but they have had to resort to massive public-relations efforts as the Law of Unintended Consequences has kicked in. Chesapeake Energy Corp., one of the larger gas producers, has hired movie actor Tommy Lee Jones as a spokesman for its operations, and the hero of Lonesome Dove is now ubiquitous on North Texas' billboards, and in newspaper and television ads. To hear old Woodrow Call tell it, opposing a gas-drilling operation is akin to lobbing a hand grenade at the Alamo. We can't help but wonder if he's got a well in his backyard, or if someone's digging a pipeline through it. Chesapeake has also hired local TV news reader Tracy Rowlett to head up something called "Shale TV," a Web site that will feature nothing but news about the Barnett Shale. Rowlett insists that the Web site will be even-handed, and present both sides of any controversy. We hope Rowlett will forgive us our skepticism on that one. http://v ww.dentorac.comisharedcontentldws/drelopinion/editorialslstoriesIDRC_editorial 0720.71 ac914... 7/21/2008 Near Justin; in the"quiet little Benton'{County town DISH, Texas; there's, another gas xe`lated~eontroversy -)reb; Ter.esttqwip be lower energy prices for the con s sumer. However, the question must be asked,4 at what,', cost to the living conditions for residents? Official's in .3 s, the sparsely populated town of about 4Q0.'hav>? _ become alarmed at the practice by the pipeline f, builders of 199109 through private •yards 'and drive ! ,ways., Somei have referred. to the town as the brand z Central Station of the Barnet Shale. Others are'afraid ,j for their,safety because the high pressure conduits are i ; directly under their feet in' their front yards !#'s difficult to imagine how such ,a horrendous situation could have: gotteri,this :liar unless public officials were asieep., at the wheel:wherrthis collision'betweenprivate property an business interests occurred. . What makes this case particularly scary„is what , appears to be a' belief on-the part of some energy com4 i A panies;that theycan create a gasutility with thepower to condemn property and install their own lines Such eminent domain power has generally been reserved for' entities that are legally described by statute as ptablic ,a.'t r utilities, highways-.br railroad's. When did the Te.cas Legislature designate private companies to vvield'sucl authority? Recently, DISH officials started to fight back;. passing a resolution. asking the Texas Legislaturefor y ' help in; regLilatmg.pipelines. Coples,,of the resolution are being ma led't6 other towns affected by ,the Sarnet "I Shale `'Southlake, Richland Hills and a few,; other-areas,;; have Already passed the resolution. It's a good idea for`; all towns-and.`cities to do the same, before we're;;all; .tripping over pipelines embedded in our lawns y x 3 ~ S ttTY ~ t I7 R DE PA RT ;Allen GRAPHIC'DESIGNER `Jerry Allison ext::227 ~ terry@thenewsconnection coin + a Mursch GRAPHIC DESIGNER Supnya Srlntvasa 3 :cfion:com ext:224 supriya@thenewsconnechon^com l- '01 .1, GRAPHIC DESIGNER:Julie Lyle 1 a ext. 230 • Julie@thenewsconnechon coin Belle Raper GRAPHIC DESIGNER Sarah Greschner 7 nectiori coin Ot. 224 -~sarah@thenewsc6onection.com I~T ~x, ~ d r l.'\ +~~~S I r, r ?Y I`ttlBl3?"NG s1 rr4 Welr, Steve Gamel Michelle Draper, Austin Schiffman, Jessica Moon lnection coin g ~y y - ~ ~PRi i Amanda Ringel ext.224 amanda@thenewsconnection:com a s' t r 1 In Dish, pipeline protest takes root I Fort Worth Star-Telegrani.com Page 1 of 2 ~x Print This Article Thursday, Aug 14, 2008 pastad on i hu, Aug. 14. 2009 In Dish, pipeline protest takes root By MIKE LEE mikelee@star-tologram.com DISH - Chuck Paul thought he had things worked out pretty welt. In 2000, he bought 63 acres in this Denton County town on which to raise horses. He was considering subdividing the land when he retires. But that possibility is on hold. Paul, 61, said his property is now crossed by three big pipeline rights of way and four pipelines. And, he said, he's learned the hard way that it's difficult for a landowner to stop the process. Once a pipeline is laid, the landowner can't build on the right of way, which can be 50 to 100 feet wide. And the landowner has little say about the route, since stale law gives pipeline companies the same right to condemn land as other public utilities. "If the pipeline company wants to put a pipeline right through city hall, right through the county building, they can do it," he said. The pipeline companies say they're doing their best to lessen the impact on Dish residents. But [own commissioners are calling on the Legislature to change the law that allows pipelines to pick their routes at will, with no oversight from local governments. And they're trying to drum up support from other towns. If the Legislature doesn't act, Paul and Mayor Calvin Tillman say other communities could suffer the same fate. "Everyone in the city of Fort Worth, including the City Council, should be going to the state Legislature to get them to change the legislation that they passed allowing the pipeline companies unfettered access," Paul said. "Every piece of ground in the state of Texas is at risk." Inhibiting development Dish, formerly known as Clark, changed its name in 2005, in exchange for 10 years' worth of free Dish satellite TV service for every resident. Located just north of Texas Motor Speedway, it seems poised for growth. But the town was built next to an Atmos Energy transmission line. Such pipelines are the superhighways of the energy business: They move large amounts of gas under high pressure from the production fields to the end users. When the Barnett Shale natural gas boom began, Dish became a natural on-ramp to the pipelina, and companies built three compressor stations to feed into it. That led to more pipelines. "It's kind of a chicken-and-egg thing," Atmos spokesman Rand LaVonn said. In Paul's case, the pipeline companies offered $30 per linear foot for a 50-fool-wide easement- about $25,000 to $26,000 per acre. But Paul said the pipelines are laid out prevents him from using the land that's left. He thinks he could have gotten $30,1100 an acre if he had subdivided the property. "I've got about a 10-or 12-acre parrot in the back irs just nonusable," he said. "On the 60 acres I have, they've basically taken charge of at least 30 acres of it." Minimizing Impact Gas companies say they're trying to lessen the impact on residents. Atmos has spent $1.3 million to help reduce noise generated by two 3,550-horsepower compressors. The company also plans to move a pressure-release valve and odorizing equipment away from nearby houses."We've worked very harden this," LaVonn said. "We want to be a respectful neighbor." Energy Transfer Partners, which also operates big transmission lines, has built a 36-inch pipeline and a 20-inch pipeline in Dish. The company has two 1,500-horsepower compressors there and could add two more, spokeswoman Vicki Granado said. Like Atmos, Energy Transfer has tried to minimize the impact on residents. Its compressors run on electricity at night, which lessens the noise. It tried to run its pipelines alongside existing power lines or railroad tracks. "Unfortunately, the Texas Department of Transportation has not been very accommodating in allowing natural gas pipelines to utilize their road easements;" Grenade said. Chesapeake Energy, which built compressor stations in a joint venture with Almos, was one of the first companies to enclose the machines, spokesman Justin Bond said. The company also chipped in for a park at Dish City Hail. "Were really trying to raise the bar' and encourage other companies to enclose compressors, he said Fort Worth debate In Fort Worth, two members of the Gas Drilling Task Force have debated whether a master plan for drilling sites and http://www.star-telegram.com/metro news/v-print/stoiy/831905.1-itinl 8/14/2008 In Dish, pipeline protest takes root I Fort Worth I Star-Telegram.com Page 2 of 2 pipelines should be created Jim Bradbury, a lawyer who sits on the task force, proposed the idea in an opinion piece in the Star-Telegram. He said the city needs to work with companies to make sure that there aren't multiple pipelines running through the same neighborhoods. "We cannot, in our neighborhoods, afford to have two wells, We pipelines," he said at a forum last week, 'T your neighborhood has leased, there's got to be a well, there's get to be a pipeline, there's got to be trucks. It's gat to he planned." Lee Nicol, a land developer who also sits on the task force, said the idea won't work. 'Who is going to tell operators that have invested millions of dollars in surface site localions and right of ways that they cannot be used since they do not fit into a master plan?" Nicol wrote in another opinion piece. "Who is going to pay for shared pad sites, and who gets to decide who uses them when?" The Dish resolution questions whether the companies should have the power to condemn land. "Each gas utility. operates exclusively as the alter ego and exclusive servant of the affiliated all and gas operator, greatly blurring the line between gas utility and oil and gas operator," the resolution says. The result is that towns get burdened with an unnecessary number of pipelines, Tillman said. And that land can't be built on. "Itjust kills your growth," he said. Tillman sent the resolution to more than 51) cities. Lake Worth adopted the resolution this week, and it has been up for discussion in Copper Canyon and Nodhlake. Staff writer Elizabeth Campbell contributed to this report. http://www.star-telegram.com/metro news/v-print/stoly/831905.html 8/14/2008