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The House Committee on Land & Resource Management heard invited and public testimony regarding interim charges related to Texas’ eminent domain statutes, and the State Power Program operated by the GLO.

This report is intended to give you an overview and highlight of the discussions on the various topics the committee took up. It is not a verbatim transcript of the hearing but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

Examine Texas’ eminent domain statutes to ensure a balance between necessary infrastructure growth and fair compensation for landowners. Review available public information and data relating to the compensation provided to private property owners. Make recommendations to improve the accountability, as well as successful development, of the entities granted eminent domain authority.

Chris Wallace, North Texas Commission

  • 1500 people are moving to Texas every day
    • Large amount of growth in North Texas
    • Infrastructure needs to keep up with growth
  • Changes to current law should not add expenses or increase litigation
    • Changes to law are not necessary
  • Current process offers protections for all parties

 

David Rankin, BNSF Railway

  • Headquartered in Fort Worth
  • Described imports and exports out of Texas on the BNSF network
  • Noted need for infrastructure to have opportunity for eminent domain to maintain the network
  • Eminent domain is the last resort and the intent is to work with every landowner
  • 11 instances since 1970 – shows judicious use of eminent domain

 

Lee Cristi, Tarrant Regional Water District

  • Described the water district
    • One of the largest raw water suppliers in Texas
    • Service area is expected to grow from 2 million people to 4 million people
  • Constructing 150-mile pipeline to be able to serve the expected demand
    • Power of eminent domain is critical to be able to continue to serve the service area
  • The process of eminent domain needs to be fair for all parties
  • Eminent domain is always used as last resort
  • Does not think it is necessary to change the system at this point
  • SB 18 (2011) was a compromise and set forth a fair and equitable system
  • Awards of attorney’s fees in eminent domain cases will be an issue seen in the legislature this coming session

 

Lisa Kaufman, Coalition of Critical Infrastructure

  • Coalition includes private and public entities that provide series for public use
  • Have been working to compile data related to condemnation for use by the committee
  • If changes are made – it needs to be considered as a large policy decision in a similar way to public education finance with consideration of unintended consequences to service providers

 

Questions to the Panel

  • Bell – mentioned most people that testified only provided anecdotal data not analytical data, how do you view that?
    • Kaufman – testimony was related to private discussions with landowner groups about perception surrounding situations related to condemnation – the coalition data shows very few instances of condemnation – would like landowner groups to provide some proposed language moving forward
  • Bell – how many people do you threaten with eminent domain before settlement?
    • Kaufman – do not have that information, will provide that information to the committee
    • Rankin – have 7 instances that ultimately settled out of court
  • Leman – have heard of specific instance of offer, with a large amount of attorney’s fees, do you feel that is a fair amount for the landowner?
    • Rankin – cannot speak to that specific case, but every instance at BNSF has settled for above-appraised value of the land
  • Leman – you mentioned 2% of cases go to condemnation through trial?
    • Rankin – 2% is an industry number that cannot speak to – only noted 11 instances since 1970
  • Leman – in instances where attorney’s fees are very high, are they included in settlements?
    • Kaufman – cannot speak to that specific case
  • Bailes – are appraisals always provided?
    • Rankin – we always provide appraisal to show how we got to our number
    • Cristi – believe most entities provide appraisal with initial offer
  • Bailes – at what point are 3rd party appraisals taken into account?
    • Cristi – it can always be taken into account and used by the landowner
  • Bailes – sometimes the award is very different than the initial offer and in many times construction will start immediately after exchange of funds and that may be a point of contention
  • Leman – how do you determine what is necessary for eminent domain?
    • Rankin – it would have to get approved by transportation safety board for any new line of railroad
  • Bell – comment was made about people who would not agree, it seems that the process implies that they will receive fair market value – how do you see compensation for instances like that?
    • Cristi – have represented people on both sides of the issue – the landowner is typically given deference on the landowners opinion of market value, related to policy – there are cases in which the landowner is not made whole, do we want to cover all of the extensive appraisals
  • Bell – it seems that we are forcing them to seek out those lawyers and appraisals, should consider raising appraisals to avoid those circumstances, is there any interest in the industry to look at that?
    • Cristi – that is something we constantly look at – under law must use independent 3rd party appraisals, more often the dispute comes to the cost of disruption to the rest of the property
  • Bell – what percent of instances receive a threat of eminent domain?
    • Cristi – It is required to disclose power of eminent domain at initial contact – do not call that threat, call it full disclosure
  • Bell – how many receive an actual threat of eminent domain?
    • Cristi – will work to get that information to the committee
  • Bell – you said you feel like everybody is heard in the current process, is there a concern for the difference between being heard and being ignored?
    • Wallace – that is a conversation within industry, do not believe that anybody is ignored
  • Bell – you believe that landowners leave the table with at least the market value?
    • At least the majority of time, yes
  • Bell – is there a place on the part of industry to accept in part what a neighbor settled for?
    • Wallace – that may be a better question for the industry, but there is an independent appraiser that provides the report
  • Bell – when you have appraisers that are always coming in with the lowest number it is a cottage industry, that is an issue that the industry needs to look at
  • Stucky – regarding appraisal shopping – if you pick the appraiser and a landowner wants to select a different appraiser that comes up with a higher value, how is that unfair?
    • Cristi – it is not unfair, it just may increase attempts at abusing the appraisal options
  • Bailes – is it the intent to take the most direct route possible?
    • Rankin – that is certainly the goal, we want to avoid eminent domain and get the project done as expeditiously as possible – the best way to do that is to get an appraisal that the other side will accept
  • Bailes – noted instances of routes being chosen that are not the most direct, why are we not going through state land or national forest lands?
    • Cristi – have not had instances like that but the straighter the line, the more efficient it is, but can be unrealistic – always archeological and environmental studies conducted – it is a lengthy and arduous process
  • Bailes – if we are truly worried about efficiency and infrastructure why would we not take the most direct line?
    • Cristi – understand but have not had that instance arise
  • Leman – excluding expansion of existing line, for new line you would have to get approval from Surface Transportation Board?
    • Rankin – that is correct
  • Leman – is there an alternative strategy to allow to move forward with a project without STB approval?
    • Rankin – No, we cannot without approval, but as a part of the process we consider alternative routes
  • Leman – that applied to inter and intrastate?
    • Rankin – That is correct
  • Leman – without approval can you use eminent domain?
    • Rankin – No, because the need has to be shown and cannot do that without approval
  • Leman – what agency would oversee those entities that attempt to build a line that is not approved?
    • Rankin – we would be in a lot of trouble for trying to build an unapproved line
  • Bell – maybe some of the problems comes from negotiation for easements, etc. that should be considered as standard offer, is industry looking at those types of conversations?
    • Kaufman – standardizing that doesn’t really work, because landowners want different things – would like landowner groups to make suggestions on what that language should include
  • Herrero – have heard that condemnation is the last resort, what is the trigger for that last resort?
    • Cristi – described process for landowner: initial offer and final offer before condemnation offer – the intent is that discussions are taken place during this entire time, but sometimes it may not happen
  • Herrero – noted the short timeline of the process
    • Cristi – noted many circumstances that inherently lengthen that process
  • Herrero – who determines when a bad actor is involved?
    • Kaufman – through litigation
  • Herrero – how do we know that industry is policing itself in a way that the issues we have heard of are not pervasive?
    • Kaufman – described licensing standards for land men versus right of way agents
  • Herrero – what exists for industry to change the approach and practice of eminent domain and purchasing of land?
    • Kaufman – that is happening within the industry is currently happening – noted that it inherently different between different industries (water, electric, gas, etc.)
  • Herrero – is there anything that says there will be a lease agreement entered into for an easement?
    • Kaufman – not aware of anything like that
  • Bell – have heard a property owner can negotiate before condemnation, but a condemner can pull that down and have it go through the courts, is there a need to protect those negotiations?
    • Kaufman – believes the statute lays out the process and protections
  • Bell – there needs to be a consideration by industry related to landowners have parity in that conversation

 

Pete Hutchins, Texas and Southwestern Cattle Raisers Association

  • Reforms need to be made related to eminent domain
  • Eminent domain begins at first contact
  • A well-balanced process allows each side to have negotiating power
  • Lack of transparency required protections and low appraisals are all issues seen throughout the process
  • Does not want more litigation – wants landowners to be partners in the process
  • Request that industry be held accountable for offers
  • Asking for accountability in next legislative session
  • Requesting information and transparency in the eminent domain process and purpose
  • Some companies operate better than others, but industry does not want to change the status quo

 

Mark Chamblee, Texas Farm Bureau

  • Law should ensure fair compensation
  • Lack of information regarding private projects is a major issue
    • Should be local public meeting related to the projects
  • Easement terms need to require protections within the initial offer

 

Questions for the Panel

  • Bell – thanked witnesses for testimony
  • Leman – what is your suggestion to stop low ball offers?
    • Hutchins – do not have exempt way to implement penalty or deterrent for that tactic, landowners cannot walk away from the process
  • Leman – are business damages part of the condemnation process for awarding value?
    • Hutchins – ensuring that a property owner can pay taxes or damage to do business on their private property on and adjacent to the property is very significant
  • Leman – is there allowance for consideration for loss of business as result of condemnation?
    • Hutchins – unaware of a prohibition of something like that
  • Bailes – there are a lot of complexities to this issue, feel that we need to get this conversation going if we are going to make real changes in the session
  • Stucky – attorney’s fees were a sticking point in last session, is there an alternate approach that would work?
    • Hutchins – will continue to look for alternatives
  • Bell – does the current process encourage lawyering up?
    • Hutchins – yes
  • Bell – has anybody looked to see how much less than fair market value is paid after attorney’s fees?
    • Chambly – there is not a way to put an exact figure on that
  • Bell – is there a challenge on easements that increases additional impediments for use of the land?
    • Chambly – yes, access on either side across the easement will be a hardship
  • Herrero – would like any additional suggestions how to resolve the issues brought forward

 

Public Testimony

 

Al Allred, Self

  • Appraised value is based upon other cases – would suggest publishing of sale prices on condemnations and comps used
  • Would like a clawback option for landowners to regain value after loss of major case
  • Would like to change the notification process
  • Herrero – disclosure of the sale for all purchases of land?
    • That is correct, so it can be used as comp, whether it went through condemnation process or not
  • Believes some appraisers are better than others because they have better information than others
    • Believes this will help appraisers
  • Related to clawbacks – if all of a landowner got 10% more then they should be able to go back and be given a fair amount

 

HD Thumpwitcher, Self

  • Stand to lose all of property and home
  • Fair market value will not be equal to what he currently owns
  • Impossible to be made whole at fair market value
  • Industry has ability to consider cost of real estate
  • Bell – could you even find land equal to what you have?
    • Would have to pay more than market value because people do not want to sell
  • Bailes – understand the situation, need the discretion between whole taking versus alternative use like buried line

 

Eileen Burlesmith, Self

  • Described personal experience with condemnation process
  • Believes that compensation should be ongoing and not a one-time payment like landowners that have wind turbines on their property

 

Calvin Tillman, Self

  • Last 25 eminent domain cases in Texas – all were by TxDOT
    • Average offer was 40% of final offer and final payment is over 100% of initial offer
  • Data comes from the state
  • Understand that most people do like to use eminent domain, but the process needs to be fair

 

James Henderson, Self

  • Would like more consideration on where exactly lines will go when crossing property
  • Would not take much to move it to a more favorable location
  • Need considerations for soil erosion
  • Herrero – discussion of lawyers’ fees – in the last agreement reached was it because it was a fair offer?
    • It settled because it was a fair offer
    • Have had other circumstances where the terms were not fair

 

Tom Giovanetti, Institute for Policy Innovation

  • Eminent domain requires just compensation not fair market value – policy needs to consider additional compensation factors in addition to fair market value
  • Concern with idea that government put specific restrictions on specific types of infrastructure, should resist that as much as possible
  • Need to take steps to protect landowners
  • Bell – related to original intent of eminent domain, it began as limit process, what is the answer to the challenge of constitutionality today?
    • Do not wholly agree with the challenge to the constitution, the difference is amount of information and transparency which would help achieve more just compensation
  • Bell – you believe that every private sector entity should be granted the right of eminent domain?
    • Not at all, it must be for public use with equal access
  • Bell – if a property is taken for a purpose which fails should the owner be given that property back?
    • That is a contract law matter
  • Bell – in condemnation, where they are an unwilling participant, should the property owner have the right to get the property back in a restored condition?
    • No, because that would be unworkable in most circumstances
  • Leman – who determines that a project is necessary?
    • It needs to be determined public use, not necessary
  • Leman – do you think the PUC structure should be replicated across other infrastructures?
    • No, do not believe that is appropriate
  • Leman – should there be no regulation/oversight?
    • There should be
    • There will not be a perfect process but we need to be able to make changes as problems arise

 

Kyle Workman, Texans Against High Speed Rail

  • Needs to be a demonstration of necessity
  • A state structure should exist to prevent an entity to declare public necessity – needs additional vetting than self-declaration
  • Should be a criminal offense for falsifying eminent domain authority
  • Right of way agents need to be licensed
  • Leman – are you aware of a state agency that enforces accountability of projects of this nature
    • Not aware of any agency with that authority
  • Leman – wanted to highlight the lack of regulatory authority
  • Herrero – the high-speed rail does not have eminent domain authority?
    • That is correct, they are not a currently operating railroad which is required by statute
  • Herrero – where is it in the process?
    • There are multiple lawsuits

 

Rita Beving, Texas Landowners for Eminent Domain Reform

  • Texas leads the nation in loss of land due to development and fragmentation
  • Greater transparency in right of way and easement sales should be allowed in the process
  • Need to ensure minimum of property rights protections within agreement
  • Right of way agents should be licensed and required to follow best practices
  • Reimbursement of legal fees should be required within given circumstances
  • Herrero – can we find your suggestions on your website?
    • Yes, they are available on the website and encourage people to visit the website

 

Holly Reed, Texas Central

  • Texas’ growth requires alternative options for transportation
  • The railroad will take no state appropriations or federal grant money
  • This train would be the least impactful way to move the most people
  • Discussed land conversion savings with railroad versus roadways as well as the emissions savings
  • Implementation of a project of this scale must be done right – being done through land purchase option
  • Construction will not begin until federal permits and funding have been attained
  • Relayed specific examples of landowner comments as to the best practices and conduct of the project
  • Believes that they are an operating railroad
  • Bell – the corridor proposed would divide the state with a berm, is that correct, and how big is it?
    • It is 240 miles and the height will vary with the terrain at least at TxDOT minimums
  • Bell – at least on average it is a few feet high?
    • That is correct
  • Bell – Waller County has at least 3 roads that are not included in the current plan, will TCR build overpasses?
    • Intent is to build that into the plan
    • The intent is to not cross a road at grade
  • Bell – will TCR continue to pay for future needs in perpetuity?
    • Will work with the landowner or developer
    • Will maintain anything that crosses the railroad
  • Bell – discussed the NEPA process, Waller County does not feel they have been involved in the process
  • Bell – requested information related to compensation related to eminent domain
    • Brad Anderson, TCR – it would be related to the appraisal and ion line with other railroad eminent domain cases
  • Leman – do you see a role from the state of Texas with the oversight and management of the massive infrastructure projects that could be constructed to maximize the public benefit and coordinated effort of eminent domain cases?
    • At this time, the federal railroad authority is the oversight body

 

Study the State Power Program operated by the GLO, and interlocal agreements authorized under Government Code Chapter 791, to ensure accountability and transparency in program administration. Evaluate program offerings to public customers as compared to those available in the retail electric market, as well as the State Power Program’s contribution to other state programs. Make reform recommendations and analyze potential impacts to program beneficiaries.

 

Robert Hatter, General Land Office

  • State power program was enabled in 1999 to sell retail power to public entities
  • Here as a resource witness

 

Gabe Castro, TXU Energy

  • ERCOT is the best in the country with reps competing on a daily basis
  • Public entities have benefitted from the deregulated market
  • This state power program does not have the same need it once had
  • Would not support any efforts to drive costs for public entities
  • Need to have level playing field across markets
  • Krause – asked about rates and roles
    • All about price, much greater amount of sophistication in the marketplace, a superintendent wants to get a possible price but there are commodities beyond price
    • Mwh hours – used as example, the cheapest ones are the ones you never have to use
    • Bringing ideas and solutions
    • But margins are very thin
  • Krause – how many competitors are there? Is there a sufficient marketplace to fill the void?
    • Incredibly vibrant marketplace – thinks about 100 + competitors

 

Julia Rathgeber, Association of Electric Companies of Texas

  • Very complex and sophisticated system in Texas
  • Thinks GLO state power program usefulness has been used up
  • Program has not lived up to its expectations
  • Believes benefit to education should be a chief goal when looking at the program
  • Problem is not how they bid the contract for the program, the anti-competitive part comes how it participates in the consumer market
  • List areas where there are price distortions such as use of state agency branding behind the program
  • Bell – what is tax that is advantage mentioned in list of price distortions
    • State agency does not pay 2% on their electricity therefore it is a benefit on their pricing
    • Some school districts may not want to go through bidding process and it may not always be in their best interest
  • Herrero – school districts can still get services from members
    • Yes, there are some they win, would say there is a significant number of them
  • Stucky – Where does most of wholesale electricity that GLO sells come from?
    • Privately contract, right off the ERCOT grid
    • Castro – relationship to contractor is also owned by Calpine so leveraging that fleet as well
    • Herrero – asked for details
    • Castro – way GLO sources power is through Calpine relationship which goes through Cavallo and GLO, not necessarily buying wholesale everyday
  • Bell – does state sell gas to that entity, is there a relationship?
    • Castro – understanding that is how it works, but they have outpaced so they have had to go out and get more
  • Herrero – how is gross receipts tax that is paid is distributed?
    • ¼ to Education and ¾ General Revenue
  • Herrero – Assume that program doesn’t exist anymore? What happens next? Will districts be held harmless? Understands program is result of deregulation, what will that do to entities now?
    • Rathgeber – would suggest districts bid and whoever provides best cost gets the program, will continue to think on this and get more details to them
    • Castro – would potentially let districts to run out bid and then do not execute any more contracts
  • Herrero – as I interpret testimony of those who want to eliminate program, more about competition but if you don’t have GLO program or something like it, what’s to keep market and price from escalating? Does existence of program help keep cost down and if so, what would help price if program would be removed?
    • Castro – gross receipts tax, use of emblem, and interlocal agreement are really only differences; nothing for any retailer to mitigate any market movements and competitive dynamics will keep each other in check
  • Herrero – is not a benefit of the program not having to go through bidding, so would that be removed through dissolution of the program
    • Castro – yes
  • Herrero – some generators still able to beat bids/contracts and earn work of districts, how is that possible? And if you don’t have it now, would like to get it at some point
    • Rathgeber – electricity some of the lowest prices in nation, have low natural gas prices, company able to purchase enough electricity can offer a lower price and this is what happens in competitive bids
    • Herrero – if we can identify that scenario, that would be the argument to be made – able to provide the lower cost to the schools
    • Castro – don’t think there is one answer to the question
    • Herrero – agrees but would like them to find it out and explain to him
  • Herrero – we know how much money generated under GLO program and how much contributed to PSF, so lets compare those numbers under GLO program and those entities that had to pay the gross receipts tax
    • Rathgeber – will do the best they can

 

 Robert Hatter, General Land Office

  • Herrero – how long have you been with the GLO?
    • Since 1987 – 31 years
  • Herrero – were you there prior to the inception of the State Power Program?
    • Yes
  • Herrero – have you been involved with the power program since your employment at GLO?
    • It was placed in my department – energy resources in 2015
    • Was familiar with it but was not managing it until 2015
  • Herrero – Is there someone else who would have more familiarity with the GLO power program?
    • Bryce Bailes, GLO – the director, would be the person with more information regarding the program
    • Bailes currently has health related issues causing him to not be available to testify
  • Herrero –SB 736 required a report on the program, can you speak to the US Energy Information Association and what was reported? Did the GLO report that there was revenue to the EIA in 2017?
    • Unable to answer at this time
  • Herrero – do you know whether or not the amount of that revenue that was reported for 2017 was approximately $507 million?
    • Believe it was $4.3 million for the State Power Program
  • Herrero – understand that of a certain amount raised by the program, the GLO only contributed $4.3 million
    • Yes sir
  • Herrero – and in 2016 it only contributed $4.2 million?
    • That is correct
  • Herrero – why of the amounts generated, where is the difference going?
    • All that money goes to the Permanent School Fund (PSF)
  • Herrero – what is all the money?
    • The enhancements – the difference between what we pay Calpine and Cavallo for the power (purchase price) and we know the price we are selling for to the customer
  • Herrero – so any difference beyond the enhancement is what?
    • The enhancement is what goes into the PSF
  • Herrero – other than that money that goes to the PSF where does the rest of the money go and how is it spent?
    • The enhancement is what the GLO gets and puts into the PSF
  • Herrero – understood that revenue that was reported in 2017 was approximately $507 million
    • Unfamiliar with that number
  • Herrero – who does the State Power Program finances?
    • Bryce Bailes, GLO
  • Herrero – who is his supervisor?
    • I am
  • Herrero – do you review the documents he provides in his work?
    • Yes, all electric contracts come past me, and I have to sign off on them
  • Herrero – as the person that approves the reports generated by your staff, are you not familiar with what those monies are or how they are spent?
    • The cost of the electric program was in our response at approximately $264,000 in 2017, primarily salaries and ordinary costs
  • Herrero – if I wanted the person that knows the most related to the finances of the program, who would that be?
    • Bryce Bailes, GLO would be the person that knows the most
  • Herrero – but you are his supervisor?
    • Yes, but I know quite a bit about the program
  • Herrero – but not about the finances?
    • Has information on how much was made in enhancements since 2001, number of contracts, number of meters, have 1.85% of the market
    • Noted he is not an accountant or CPA
  • Herrero – EIA report reflects GLO reports that through this program it generated revenue of $507 million, you cannot tell me if that is correct?
    • No, and do not know where that number comes from
    • Will find out and get that information to the committee
  • Herrero – who other than you has been at the GLO longer than you working on the power program?
    • Bryce Bailes has been with the program since 2006 and may have more information
  • Herero – disappointed that you, as a supervisor, are not familiar enough to testify
  • Herrero – what is your understanding of where GLO receives the gas to generate the power?
    • Contract with Calpine requires them to purchase 25,000 MMBTU of natural gas every day
  • Herrero – does GLO only use in-kind royalties that it produces on state lands for purchase of power?
    • It depends on what is meant by “in kind”
  • Herrero – understand the statute says that only the in-kind royalties are supposed to be the basis for utilizing to purchase the power to be sold by the GLO in the power program
    • It depends on where we sell the gas
    • It can be beneficial to sell close to where it is purchased and purchase again on the free market
  • Herrero – a quick review of the statute as read by some is limited to only in-kind royalties as opposed to general royalties to purchase the gas, do you have an opinion on that one way or the other?
    • Legal department has advised that we could not spend more than revenue generated on natural gas to provide electricity to customer
  • Herrero – is that being done?
    • Yes
  • Herrero – under what authority?
    • The utility code – 35.102
  • Herrero – is that an adopted policy within the GLO?
    • That is how we’ve done it since I’ve been in charge
    • That is how it was handled prior to that as well
  • Herrero – how much has the GLO spent annually on purchase of gas to support the program?
    • Do not have the exact number
  • Herrero – do you know whether or not in 2017 the GLO spent $98 million in purchasing gas to support the program?
    • Did not bring that report, so cannot confirm that amount
    • It sounds accurate
  • Herrero – why would the GLO have to purchase gas?
    • There is cost to get gas from west Texas to east Texas, it is more economical to sell it in west Texas and reacquire it in east Texas
  • Herrero – is there a report or memo at the GLO about being able to purchase gas with other than in-kind royalties?
    • Yes, will provide that information to the committee