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Eminent Domain and Public Utilities in New York

December 5, 2011

Eminent domain—the power of government to appropriate private property without the owner’s consent—is an age-old governmental power commonly invoked in relation to the construction of public utilities. I gave a presentation last week about eminent domain and public utilities in New York, and because public authorities are often involved in these sorts of cases, I thought I’d post some of my research here, covering four broad (and somewhat overlapping) issues: general legal considerations regarding eminent domain and public utilities; the New York Eminent Domain Procedures Law; eminent domain and the New York Public Service Law; and valuation in public utility just compensation challenges.

I’ll have a more detailed and nuanced paper soon, but in the meantime, if you have any questions feel free to send them to me at publicauthorities@gmail.com or post them in the comments.

Both the Fifth Amendment to the United States Constitution and article 1, section 7 of the New York Constitution require that takings must be for a “public use,” and that “just compensation” must be paid to the owner of condemned property. (Just compensation is discussed in more detail below.)

While the exact meaning of term “public use” has been debated for centuries, the federal and New York State courts have adopted a liberal interpretation and have held that condemnations satisfy the public use requirement so long as the ultimate use of the property serves some public purpose or provides a public benefit. See Kelo v. New London, 545 U.S. 469 (2005) and Kaur v. N.Y.S. Urban Dev. Corp., 15 N.Y.3d 235 (2010).

Notably, the courts won’t invalidate a condemnation just because it has some private benefits, so long as there’s an overriding public benefit or purpose, and they won’t second-guess decisions regarding the necessity or location of a particular condemnation. Really, the only way to convince the courts in New York to invalidate a proposed condemnation based on the lack of a public use is to prove that the taking is arbitrarily or unreasonable, that its public benefits are completely illusory, or that it was undertaken in bad faith. The extensive judicial deference in eminent domain cases (also known as “rational basis review”) makes it very difficult to prove any of these claims, but it also allows the courts to maintain a flexible definition of “public use.” This is important because public and governmental needs are constantly shifting with the development of new technologies and changing social conditions.

In most cases, public utilities and common carriers easily meet the minimal standards for qualifying as public uses, and they’ve long been recognized as some of the most quintessential public uses justifying the use of eminent domain. The courts in New York have upheld the use of eminent domain for various public utility purposes, including street lighting, waterworks, sewearge infrastructure, telephone and telegraph lines, streetcars, railroads, subways, electric generation plants and transmission lines, gas lines, wind turbines, and offices and other facilities necessary for the operation of such public utilities.

One of the earliest cases in the country to uphold the use of eminent domain for private railroads was Bloodgood v. Mohawk & Hudson R. R. Co., which was decided in 1837 by the New York Court for the Correction of Errors, which was the state’s highest court at the time. As the court explained in that case, “railroads for the conveyance of travelers, or the transportation of merchandise from one part of the State to another [are] public improvements and for the public benefit.”

In the 1888 case In re Niagara Falls & W.R. Co., the Court of Appeals refused to permit the use of eminent domain for the construction of a private railroad intended “to provide for the portion of the public who may visit Niagara Falls, better opportunities for seeing the natural attractions of the locality.” In holding that the tourism railroad did not qualify as a constitutional public use, the court emphasized that it was to be operated for profit, and that unlike more typical railroads, it had no termini and was not intended to be used for travel or freight transportation.

The Niagara Falls case is an outlier, however, and numerous court decisions have since upheld condemnations for railroads and other utilities, even where they provide incidental private benefits. The 1928 case Board of Hudson River Regulating District v. Fonda, Johnstown and Gloversville Railroad Co. upheld the condemnation of railroad property in order to construct a dam and reservoir, and rejected the railroad’s claim that the true purpose of the condemnation wasn’t really for flood control, but was actually intended to benefit private power producers. Even if there was a profit motive, the Court of Appeals held, the public use was sufficient. Similarly, in Oneonta Light & Power Co. v. Schwarzenbach, a 1914 case involving the use of eminent domain for the construction of hydroelectric and steam power generation facilities, the Third Department explained that “So long as the intended use of an improvement… is not restricted to private parties or private interests, but is open to the whole public, it is no valid objection… that it will benefit one person, or some class of persons, more than others, or that it originated in private interests and was intended in some degree to subserve private purposes.”

The New York courts have also applied a deferential standard of review in cases challenging the necessity or location of proposed utility takings. As the Third Department explained in the Oneonta Light & Power Co. case, the “necessity” of a public use isn’t measured by its absolute necessity, but only by whether there’s a reasonable necessity for the taking. In that case, the court rejected the defendant’s claim that operating the dam at a height that would flood his property was “unnecessary” because it could have had ample power at lower levels, instead finding that “the evidence shows that practically the whole business of the plaintiff consists in furnishing light to the municipality and the inhabitants of the city of Oneonta, and establishes the necessity of plaintiff’s acquiring the land in question in order that the plaintiff’s reservoir may be maintained at sufficient height and volume to supply power during a considerable portion of ordinary seasons.”

In Neptune Associates, Inc. v. Consolidated Edison Co., which was decided in 1986, the Second Department similarly explained that the “claim that other sites are available and are adequate to meet the respondent’s needs likewise presents no basis to set aside the [condemnation]. The selection of a particular site is properly a matter for the condemning authority rather than the court.” The court proceeded to find that there was sufficient evidence in the record justifying the particular condemnation, noting that the condemnor “undertook a lengthy study of more than 40 available sites, evaluating the size, location, zoning restrictions, roadway accessibility, and construction costs of each.”

The United States Supreme Court also issued a number of opinions during the late 1800s and early 1900s that upheld the use of eminent domain for common carriers and public utilities. In the 1890 case Cherokee Nation v. Southern Kansas Railway Company, the Court stated that “the question is no longer an open one, as to whether a railroad is a public highway, established primarily for the convenience of the people, and to subserve public ends…. It is because it is a public highway… that the corporation by which it is constructed, and by which it is to be maintained, may be permitted under legislative sanction, to appropriate private property….” The Supreme Court ruled on another railroad condemnation case in 1908, Hairston v. Danville & W. R. Co., and affirmed a decision permitting the use of eminent domain to build a spur line that would provide access to a private tobacco shipping company, with the asserted (and rather weak) public purpose being that the construction of extra lines would result in quicker and safer freight loading.

The Supreme Court addressed the use of eminent domain for electricity production in the 1916 case Mt. Vernon-Woodberry Cotton Duck Company v. Ala. Interstate Power Company, which involved condemnation proceedings for a hydroelectric dam that would produce and sell electricity. The condemnations were challenged by downstream landowners, but the Court upheld the use of eminent domain, remarking eloquently that “to gather the streams from waste and to draw from them energy… and so to save mankind from toil that it can be spared, is to supply what, next to intellect, is the very foundation of all our achievements and all our welfare. If that purpose is not public we should be at a loss to say what is.” Hendersonville Light & Power Co. v. Blue Ridge Interurban Rwy Co., decided by the Court the following year, also involved the condemnation of water rights needed for the construction of a hydroelectric dam. The plaintiffs argued that because excess electricity generated by the plant would be sold off, the dam wasn’t a public use, but the Court rejected this argument. Even if such sales were to occur, the Court explained, they would be merely a “possible incident necessary to prevent waste, of the primary public use.”

Two Supreme Court cases involving the Tennessee Valley Authority also upheld the use of “excess condemnation” in relation to public utility facilities. In Brown v. United States, decided in 1923, the Court held that the TVA could condemn not only properties that would be flooded by a dam project, but also extra land that would be used to relocate the owners of flooded land. (Curiously, none of the people whose land was to be flooded filed suit; the claim was brought by the landowner whose property was to be condemned for their relocation.)

TVA v. Welch, which was decided in 1946, essentially involved the TVA’s condemnation of an entire village. The reservoir project at issue in that case was going to flood part of the only road that accessed the village, and because neither the state nor the TVA had the money or manpower to rebuild the road (there was a war on, after all), the TVA decided to condemn all of the property in the area and transfer it to the National Park Service to be included in an adjacent national park. The Supreme Court upheld this condemnation, finding that there was a public use because the land would be transferred to a federal agency and because the TVA had nearly unlimited discretion under its enabling legislation to decide what condemnations were necessary to fulfill its statutory goals. Excess condemnation has also been upheld by the New York Court of Appeals.

While public utilities typically provide obvious public benefits through the provision of transportation, energy generation, and infrastructure services, contemporary condemnation cases involving public utilities also emphasize their economic development benefits. In Dudley v. Town of Prattsburgh, for example, the Fourth Department upheld the condemnation of easements needed for a wind farm and recognized, in particular, that the easements would serve the public uses of creating jobs and stimulating private sector development.

Statutory Authorization for Public Utility Condemnations

As an innate sovereign power, the federal government and all of the states have the authority to acquire property by condemnation. But because Congress and the state legislatures are often preoccupied with other matters, they usually delegate their eminent domain powers to public agencies, quasi-public authorities, and private corporations that provide public uses. Delegations of eminent domain powers must be contained in statutes that contain clear standards, and entities exercising eminent domain may only do so for the purposes for which they have been authorized.

In New York, the Transportations Corporations Law provides the statutory authority for the use of eminent domain by most private utility corporations, including gas and electric corporations, telegraph and telephone corporations, waterworks, pipe line corporations, freight terminal corporations, and sewage-works corporations. The eminent domain powers granted to these utilities have separate and sometimes quite different requirements, which can lead to complications when utilities are incorporated under more than one section of the Transportation Corporations Law and attempt to use more lenient but less fitting eminent domain laws. In the 1968 case Iroquois Gas Corp. v. Jurek, for instance, the Fourth Department questioned whether a utility company could condemn property for a pipeline under the statute authorizing gas corporations to use eminent domain, instead of the statute authorizing pipeline corporations to use eminent domain. And in the 2003 case Herald Sq. S. Civic Assn v. Consol. Edison Co. of N.Y., the New York County Supreme Court noted that if it chose to use its eminent domain powers, different requirements would be imposed on the energy company depending on which provision of the Transportation Corporation Law it chose to use.

While the Transportation Corporations Law applies to the use of eminent domain by private utility companies, municipal utility condemnations are regulated under provisions of the General Municipal Law and the general laws governing cities, towns, and villages. Likewise, public utilities and transportation authorities created pursuant to the Public Authorities Law have their own separate statutory condemnation authorizations. State agencies, public authorities, and local governments, moreover, also have the authority to use their condemnation powers on the behalf of private utilities.

A number of federal laws also grant condemnation powers to interstate utilities, including hydroelectric plants, natural gas pipelines, electric transmission facilities, and Amtrak rail lines.

Prior Public Uses and the Preemption of Eminent Domain Powers

Cases involving the condemnation of preexisting public uses raise difficult questions about priority but are usually resolved on the basis of statutory authority. (Separate considerations must be taken into account in cases involving the Public Service Law, which are discussed below.) In Massena v. Niagara Mohawk Power Corp., for example, the Court of Appeals upheld the town’s statutory authority to condemn privately owned public utility property for the purpose of municipalizing its electric distribution system. In Citizens for Orderly Energy Policy, Inc. v. Cuomo, the Court of Appeals upheld the statutory authority of the Long Island Power Authority to appropriate “all or any part” of the assets of the Long Island Lighting Company in order to lower power costs. And the Second Department held in the 1984 case Long Island R. R. Co. v. Long Island Lighting Co., that the electric company had the statutory authority to condemn railroad property.

When there’s no clear statutory authority and the issue involves the power of a municipality or private utility to condemn state lands or public trust property, the state’s sovereignty may preempt condemnation, as in the 1917 case Watervliet Hydraulic Co. v. State,  where the Third Department explained that the city had no power to “deprive the State of its proprietary or sovereign rights in navigable rivers.”

Federal sovereignty may similarly trump the states’ eminent domain powers. In Erie Blvd. Hydropower, L.P. v. Stuyvesant Falls Hydro Corp., for example, the Third Department relied on federal law in determining that one private hydropower company could condemn the property of another private hydropower company. Although both companies had the same condemnation powers under state law, the corporation seeking the condemnation had been designated as a colicensee under a federal license, and under the Federal Power Act, the court explained, it thereby had the authority to act as a condemnor. The Court of Appeals has held, however, that the federally licensed public utility property can be condemned if the acquisition doesn’t interfere with interstate commerce, as in Board of Hudson River Regulating District v. Fonda, Johnstown and Gloversville Railroad Co., which involved the condemnation of a small section of railroad track for a power generation project. As the court explained, “the State does not seek to interfere with, regulate or to cause abandonment. Its purpose is to acquire part of the carrier’s property in order to promote public health and safety and to pay enough to enable the carrier advantageously to relocate and continue operation.”

In the absence of clear statutory or sovereign priority, the question of whether one condemning authority can use its powers against another is weighed by the courts, which consider various factors such as the relative importance of the competing public uses, the extent of interference or destruction of the prior public use, and the availability of alternative condemnation or relocation sites. In Buffalo v. Iroquois Gas Corp., for example, the court held that the City of Buffalo couldn’t condemn the gas company’s property for urban renewal and school construction purposes because the gas company showed “an immediate and critical need for a site in the downtown area so that emergency services will be readily available… and it has shown also that no other sites are presently available for that purpose.” In the same vein, the Third Department commented in County of Delaware v. Walton Water Co., that “The county’s right of condemnation [for highway purposes] as against the [public water] utility depends… upon factual findings against the claim that such destruction or interference in some substantial degree will result from the taking.” The issue, the court explained, “is for judicial rather than legislative determination in the absence of any authority in the municipality beyond ‘a general grant of power to condemn property.’”

All condemnation actions in New York have to comply with the Eminent Domain Procedure Law (EDPL), which includes provisions relating to notice and public hearings, required public use findings, offer and negotiation, vesting and possession, and judicial review of public use and just compensation claims.

Article 2 Notice and Hearing Requirements and the Determination and Findings

The EDPL requires at least one public hearing to be held prior to acquisition. During the hearing, the condemnor must discuss the purpose of the condemnation, its proposed location and any alternative sites, as well as any other information it deems relevant. There must also be an opportunity for the public to submit written and oral comments. General notice of the meeting must be provided by newspaper publication, and the owners of the property at issue must receive notice by personal service or certified mail. Inadvertent notice defects, however, do not constitute grounds for challenging the validity of a condemnation.

Within 90 days of the conclusion of the public hearing, the condemnor must issue a what’s called a “determination and findings.” This document has to include:

(1) the public use, benefit or purpose to be served by the proposed public project;

(2) the approximate location for the proposed public project and the reasons for the selection of that location;

(3) the general effect of the proposed project on the environment and residents of the locality;

(4) such other factors as it considers relevant.

The determination and findings must be published in the newspaper and served on affected property owners by personal service or certified mail, and the property owners must be specifically informed that any judicial challenge to the validity of the taking must be brought within 30 days.

Section 207 Judicial Review

In addition to the short time period for initiating judicial review—similar Article 78 proceedings challenging government decisions, by contrast, usually have a four month statute of limitations—all challenges based on the determination and findings are heard by the Appellate Division. This means that property owners don’t receive a trial or any opportunity for discovery, and any evidence not in the public hearing record is inadmissible. The scope of review is also very limited, and the court can only consider whether:

(1) the proceeding was in conformity with the federal and state constitutions,

(2) the proposed acquisition is within the condemnor’s statutory jurisdiction or authority,

(3) the condemnor’s determination and findings were made in accordance with procedures set forth in this article and with article eight of the environmental conservation law, and

(4) a public use, benefit or purpose will be served by the proposed acquisition.

This limited judicial review is intended to expedite condemnation procedures and reduce litigation, which can cause lengthy delays in the commencement and completion of public projects. As a result, the courts have interpreted the scope of review strictly and they have refused to consider various arguments not listed in the statute. In Neptune Associates, Inc. v. Consolidated Edison Co., for example, the Second Department refused to consider alleged violations of Article 3 of the EDPL, and in Dudley v. Town of Prattsburgh, the Fourth Department held that it had no authority to review alleged ethics violations during a Section 207 review of condemnation proceedings for wind farm easements.

While the EDPL’s judicial review procedures give an immense advantage to condemnors, however, they shouldn’t take the EDPL’s substantive requirements for granted.

The first and fourth subjects of review—whether the proceeding conforms with the federal and state constitutions and whether the proposed acquisition has a public use—usually involve identical public use claims, although other constitutional provisions are occasionally raised. Despite the high level of deference accorded to condemnation decisions and the general acceptance of public utilities as valid public uses, the courts have occasionally rejected utility condemnations under the EDPL based on their lack of public use. In the 2010 case Matter of Syracuse Univ. v Project Orange Assoc. Servs. Corp., the Fourth Department concluded that corporation’s attempt to condemn a cogeneration facility had only illusory public benefits; the real purpose, the court found, was to avoid the consequences of an unfavorable contract agreement. A similar result was reached in a 2008 decision involving the proposed condemnation of a power plant in Nassau County, Matter of Steel Los III LP v. N.Y. Power Authority.

The second basis for judicial review, the issue of statutory authority, has also been addressed in a number of cases. In Project Orange Associates, in addition to holding that the condemnation lacked a valid public use, the court also found that the corporation, which was organized as an electric corporation under the Transportation Corporations Law, had no authority to condemn a steam generation plant, because such facilities are not included among the statutory purposes for electric corporations. (As noted above, a similar finding was made in Iroquois Gas Corp. v. Jurek.) Where the delegation of eminent domain powers is less clear, however, the courts typically defer to condemnors and interpret their condemnation powers broadly. In Neptune Associates, Inc. v. Consolidated Edison Co., for example, the Second Department rejected the claim that the power company could only use eminent domain for the construction of generation and transmission facilities and held that it was within the power company’s statutory authorization to condemn property for an “operations center.”

The third issue for judicial consideration deals with the notice and hearing requirements in Article 2 of the EDPL and the environmental review procedures required by the State Environmental Quality Review Act (SEQRA). In a case regarding compliance with Article 2, Green v. Oneida-Madison Electric Cooperative, Inc., a condemnation for a utility substation was invalidated for failure to comply with certain notice provisions of the EDPL. And the Third Department in Niagara Mohawk Power Corp. v. Green Island Power Auth. invalidated a proposed condemnation intended to provide power at lower rates under this provision for failing to comply with SEQRA. The condemnor had decided that environmental review was unnecessary, but the court disagreed and held that it had failed to take meet SEQRA’s “hard look” requirement because the plant’s operation would have required a workforce with extensive technical expertise, and this raised questions about whether the condemnor could have safely operated the plant.

Section 206 Exemptions

Public utility condemnations can be brought according to the notice, hearing, and judicial review provisions in the Article 2 of the EDPL, but an exemption is also provided in Section 206 for projects that have received a certificate of environmental compatibility and public need from the Public Service Commission. In many cases, this exemption will allow public utilities to proceed directly to acquisition proceedings and bypass constitutional public use challenges altogether.

Another exemption that may be available to public utilities is the exception for “emergency situations.” The court considered this exemption in Matter of Steel Los III LP v. N.Y. Power Authority, where the purported “emergency” was the need to fast-track the facility in order to meet energy demands. The court, while not ruling conclusively on the issue, suggested that the exemption was probably unwarranted because the condemnor had been working on the matter for several months and consequently, it “appear[ed] that [the condemnor] had time to engage in the ordinary acquisition procedures without utilization of the ‘emergency’ exemption.”

Offer and Negotiations

Article 3 of the EDPL covers offers and negotiations, and expresses a general policy that “the condemnor, at all stages prior to or subsequent to an acquisition by eminent domain of real property… shall make every reasonable and expeditious effort to justly compensate persons for such real property by negotiation and agreement.” There is no good faith negotiation requirement in the statute, however, and the Fourth Department held in Nat’l Fuel Gas Supply Corp. v. Town of Concord that a utility didn’t need to prove good faith negotiations as part of its action to condemn permanent natural gas storage easements.

An appraisal is the first step in the offer and negotiations stage, with the appraiser being chosen by the condemnor. Following appraisal, the condemnor must make an offer of just compensation, which can be no lower than the highest approved appraisal. If the property owner accepts the offer, then a written agreement is drawn up detailing the terms of payment. Alternatively, the property owner can accept an advance payment and reserve the right to file a claim for damages later, or he can reject the offer and file an action for damages with the court of claims. These just compensation disputes are then resolved at a later stage in the proceedings.

Vesting and Possession

The condemnor can initiate acquisition proceedings up to three years after the latest of: the publication of the determination and findings; the date of issuance of a certificate of environmental compatibility and public need if the condemnor claimed a Section 206 exemption; or the date of entry of a court decision approving the condemnation under the EDPL’s Section 207 judicial review procedures. Failure to commence acquisition proceedings within the three year time period results in abandonment, and the process must be started from the beginning if the condemnor later renews its interest in obtaining the property.

Acquisition proceedings for properties with a value of at least $25,000 are heard by the court of claims (condemnations for less than $25,000 are heard in the supreme court in the county where the property is located), and to commence acquisition, the condemnor must submit a copy of the original acquisition map indicating in each instance the particular easement, interest, or right in the real property that is being acquired, including metes and bounds or section, block, and lot numbers. The condemnor must also submit a petition setting forth its compliance with Article 2 of the EDPL, a statement of the public use or benefit of the condemnation, and a request for an order filing the acquisition map and vesting title in the condemnor. For projects subject to regulation by the Public Service Commission, the condemnor may also be required to post a bond and a copy of the certificate of environmental compatibility and public need.

The court of claims, at any stage in the vesting proceedings, can direct the condemnor to take immediate possession of the property if it determines that the public interest would be prejudiced by delay. Otherwise, the court reviews the acquisition map and condemnation petition for procedural errors, and vesting occurs when the court files an order granting the petition of condemnation. Notice of the filing of an acquisition map must be served on the condemnee within 90 days, which commences a three year statute of limitations for filing a claim regarding just compensation.

Procedures for Determining Just Compensation

When a condemnee challenges the amount of just compensation offered for the subject property, the EDPL provides that the court can review evidence including written appraisals, expert witness testimony, and other valuation reports. The trial court must also view the property, unless the parties agree to a waiver. The condemnee may be entitled to interest on the judgment, and if the court’s award is substantially higher than the condemnor’s offer, the court can award an additional amount to the condemnee for costs, including reasonable attorney, appraiser, and engineer fees. The substantive issues decided in valuation proceedings are discussed below.

EDPL Section 206 Exemptions

As explained above, a utility that has received a certificate of environmental compatibility and public need from the Siting Board is entitled to a Section 206 exemption under the EDPL. Although it isn’t required to take this exemption, doing so allows it to bypass possible judicial review under Section 207 and immediately commence acquisition proceedings under Article 4 of the EDPL—an approach that should be preferred both for its certainty and expediency.

Unlike the judicial review authorized under Section 207, a condemnee cannot challenge an Article 4 acquisition proceeding on public use grounds because, as the Fourth Department explained in New York State Electric & Gas Corp. v. Karas, “the purpose of [the Section 206 exemption] is to relieve the condemnor of a redundant obligation. In other words, having established the environmental impact and public need of the proposed facility to the satisfaction of the Public Service Commission, petitioner is not to be put to the same proof again for each parcel it seeks to acquire along the approved route.”

Preemption of Condemnation Actions by the Public Service Law

The Public Service Commission has comprehensive regulatory authority over the siting of major public utility facilities and infrastructure, and municipalities are preempted from taking any local action intended to regulate the siting of such facilities, including condemnation, once certification proceedings have been commenced before the Siting Board. This ruling was made in the 2005 case Matter of City of New York, which involved the city’s attempt to prevent the construction of a generating facility on the Brooklyn waterfront by instituting condemnation proceedings to acquire the land for a park. Because the utility company, TransGas, had already commenced the process to obtain a certificate of environmental compatibility and public need from the Siting Board, however, the court held that the city’s condemnation was preempted, regardless of its public purpose or intended use of the property.

In response to New York City’s attempt to condemn the proposed site of its power plant, TransGas not only contested the validity of the city’s attempted acquisition, it also commenced its own proceedings to acquire the land, which it didn’t own in fee. However, in Matter of City of New York v. TransGas Energy Servs. Corp., the second decision issued in the litigation, the Second Department held that the Public Service Law also preempts any utility from commencing condemnation proceedings while its own application is pending before the Siting Board. This is because the Public Service Law provides that “no court of this state shall have jurisdiction to hear or determine any matter, case or controversy concerning any matter which was or could have been determined in a proceeding under this article … except to enforce compliance with this article or the terms and conditions issued thereunder.” As the court explained, the utility had to wait until it had received a certificate of environmental compatibility and public need before commencing condemnation proceedings under the EDPL.

In yet another stage of the same litigation, Matter of TransGas Energy Sys., LLC v. N.Y.S. Siting Board, the Second Department upheld the Siting Board’s decision denying TransGas’ application for a certificate of environmental compatibility and public need. TransGas, in an attempt to reach a compromise with the city, had developed an alternative plan that would have placed the entire power plant underground, allowing the property’s surface use as a city park. The compromise was never worked out though, and the underground plan required TransGas to lay its water and steam pipes under certain city streets and public waters. Because it refused to seek voluntary permissions from the city for these easements, the Siting Board denied its application. The board concluded, and the court agreed, that despite its broad control of siting decisions granted under the Public Service Law, it didn’t have any statutory authority to supersede the city’s authority and grant TransGas permission to lay its water and steam pipes under city streets and public waters.

The TransGas litigation highlights a few conflicts that can arise in eminent domain cases involving the Public Service Law, but it leaves a number of questions unresolved. None of the opinions explain, for example, whether the Public Service Law preempts municipalities from condemning the site of a proposed or completed utility project after it has received a certificate of environmental compatibility and public need. While the Public Service Law may prohibit attempts to interfere with siting decisions, its preemption, presumably, doesn’t last forever.

Just compensation, as noted above, is generally defined as “fair market value.” It’s required not only for the condemnation of real estate in fee, but also for the taking of lesser interests such as easements and access routes, and when only part of a property is condemned, just compensation must also account for consequential damages to the remainder of the property. Disputes about just compensation are highly fact-specific, and there’s no simple rule for determining fair market value.

Highest and Best Use

One of the most difficult problems is that fair market value is typically based on the “highest and best use” of the property, but the parties often dispute what that is because different use classifications can have dramatic impacts on property values. In Brubaker v. State, for example, the Third Department concluded that the property’s highest and best use for purposes of determining just compensation for a power line condemnation was properly found to be for industrial purposes, based on various facts in the record, even though it was zoned agricultural and residential. In another case, Consolidated Gas Supply Corp. v. Genovesi, the Third Department upheld the decision to determine just compensation for a natural gas pipeline based on the property’s value as agricultural land, even though the property owners claimed that its highest and best use was for single-family residential development.

Relevant Factors and Valuation Tests

Determining just compensation is even more complication because any number of factors could be relevant the property’s value, including, among other things, evidence as to its age, location, surroundings, condition, productiveness, and adaptable uses. Additionally, no single factor is decisive. There are also different valuation tests that may be more or less appropriate in different circumstances, such as tests based on reproduction costs, references to comparable sales or to governmentally fixed prices, or formulas that take income capitalization into account.

Sufficiency of Evidence

The sufficiency of evidence often comes up in valuation cases. In Consolidated Gas Supply Corp. v. Genovesi, the court refused an award of consequential damages for the installation of a high pressure gas line because the only evidence of consequential damages provided by the property owners concerned the property’s use for residential purposes, and not for agricultural use, which was ultimately determined to the be the highest and best use of the property. A lack of evidence of any damages will also preclude recovery, as, for example, in Lubelle v. Rochester Gas & Electric Corp., where the Fourth Department stated that “if a use… in no way impairs the right of free passage, and is not unreasonably injurious to the adjoining property owner and is directly advantageous to the public, that use does not constitute a compensable, additional servitude on the fee, so long as it is confined to the limits of the highway.” On the other hand, nominal damages were permitted in Heyert v. Orange & Rockland Utilities, Inc., where the court concluded that a utility easement interfered with property owners’ rights but only in a minor fashion.

Consequential Damages for Subjective Losses

Calculating just compensation for consequential damages—the depreciation in value to the remainder caused by the condemnation of a portion of property—raises its own valuation problems, especially where the alleged damages are subjective. In the 1940 case Fallsburgh v. Silverman, the owner of a hotel in a scenic area claimed that he was entitled to consequential damages for the loss in value to his hotel when a sewage company condemned a portion of the property for a new treatment plant. The trial court rejected the award of consequential damages as excessive because it was based on mostly aesthetic damages, but the Third Department reversed, explaining that “the portion of the hotel property left to the Silvermans has been rendered much less attractive by reason of the erection and operation of a sewage disposal plant in close proximity and full view of both the recreational area and the hotel. While it may to some slight extent be a mere state of mind that keeps guests away from this hotel, nevertheless the damage to the hotel owners is very real.”

The valuation of subjective property impacts has arisen more recently in the context of high voltage power line easements. In the 1993 case Criscuola v. Power Auth., the property owner claimed that rights of way for high voltage power lines had decreased the property’s market value, and that this loss was compensable regardless of the reasonableness of the fear of health risks from high voltage power lines. The Court of Appeals agreed, holding that “The issue in a just compensation proceeding is whether or not the market value has been adversely affected. This consequence may be present even if the public’s fear is unreasonable. Whether the danger is a scientifically genuine or verifiable fact should be irrelevant to the central issue of its market value impact. Genuineness and proportionate dollar effects are relevant factors, to be sure, but in the usual evidentiary framework. Such factors should be left to the contest between the parties’ market value experts, not magnified and escalated by a whole new battery of electromagnetic power engineers, scientists or medical experts.”

Consequential Damages for Speculative Losses

While consequential damages may be available for decreases in property value caused by the subjective or aesthetic effects of partial takings or utility easements, they will not be awarded for purely speculative damages, which is in accord with the general rule that value must be fixed at the time of taking. In Clark v. State, the Fourth Department addressed this problem in its review of certain transmission line easements that contained very broad language and seemed to give the state Power Authority the right to severely restrict the owners’ use of their property in the future. As the court explained, however, there was no proof that the Power Authority had any intention to do so, and it had made various declarations regarding its intent to not to restrict their property rights beyond the basic requirements of the easements. Rather than allow speculative damages, the court made appropriate findings limiting the easements and noted that “if the Authority or the State by some affirmative act terminates or interferes with such found rights, such action would constitute a de facto appropriation for which any claimant hereafter might be entitled to compensation.”

Compensation for Utility Relocation Costs

When utilities are located in a right of way that is later moved or converted to another public use, the traditional rule is that the utility must pay for its own relocation costs, especially when its authority to locate in the right of way is based on a franchise. This was the result in Ashland Oil & Refining Co. v. State, where the Court of Appeals held that the oil company wasn’t entitled to damages for the cost of relocating its pipeline due to highway changes because its easement in the property was subject to the town’s right of way and was conditioned on its assumption of such costs. Similarly, in Consolidated Edison Co. v. Lindsay, the public utility sought damages for the relocation of its pipes, mains, and conduits from the street beds in an area condemned by the city for urban renewal and school construction purposes. The Court of Appeals refused to grant such costs, however, because “the company ha[d] no vested property right to the use of any particular street but [had to] assume the risk of having to relocate as part of its general right to use the streets.”

Despite the general rule requiring utilities to pay for right of way relocation costs, the courts in some cases have found the authority to require just compensation for these costs. In Algonquin Gas Transmission Co. v. New York State Thruway Authority, for example, the court of claims found that the gas company was entitled to damages for the state’s appropriation of its pipeline for Thruway purposes because at the time when the pipeline was installed, the Thruway hadn’t appropriated any land in the area or designated specific land for condemnation, but had only indicated a general plan to construct the Thruway in the vicinity. And in City of New York v. Consolidated Edison Co. of N.Y., Inc., the First Department held that because the transmission lines were located on a permanent easement that the pipeline company had purchased for a substantial sum, the “State’s uncompensated interference with the company’s property rights would be an unconstitutional taking.”

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