Columbia Gas Transm. Corp. v. An Exclusive Natural Gas Storage Easement

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State: Ohio

Court: Supreme Court

Docket No: 1993-0129

Case Date: 10/27/1993

Plaintiff: Columbia Gas Transm. Corp.

Defendant: An Exclusive Natural Gas Storage Easement

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Columbia Gas Transmission Corporation v. An Exclusive Natural
Gas Storage Easement in the Clinton Subterranean Geological
Formation et al.
[Cite as Columbia Gas Transm. Corp. v. An Exclusive Natural Gas
Storage Easement (1993), Ohio St.3d .]
Appropriation of underground gas storage easement --

Determining measure of just compensation.

(No. 93-129 -- Submitted June 3, 1993 -- Decided
October 27, 1993.)

On Order from the United States District Court, Northern
District of Ohio, Eastern Division, Certifying a Question of
State Law, No. C88-0936A.

H. L. Snyder and Amos Perrine; Noble & Sullivan and David

D. Noble, for petitioner Columbia Gas Transmission Corp.

Vorys, Sater, Seymour & Pease, Stephen M. Howard and M.
Howard Petricoff, for respondents Matthew K., Luann, Ross, and
Phyllis G. McCullough, and Universal Exploration, Inc.

Kenneth R. Long; Critchfield, Critchfield & Johnston,
Daniel H. Plumly and Robert C. Berry, for amicus curiae East
Ohio Gas Company.

The United States District Court, Northern District of
Ohio, Eastern Division, pursuant to S.Ct.Prac.R. XVI, has
certified the following question to us:

"According to the law of the state of Ohio, what is the
measure of just compensation for the appropriation of an
underground gas storage easement?"

We hold that the proper manner to determine the value of
an underground gas storage easement was delineated by United
States District Court Judge Dowd, Jr., when he instructed the
commission which he had appointed under Fed.R.Civ. P. 71A(h).
Judge Dowd's analysis is as follows:

"In determining just compensation for the easement, you
shall consider fair market value. The fair market value is the
fair and reasonable amount which could be attained in the open
market at a voluntary sale. In this case, there are
alternative methods of determining fair market value based upon

your preliminary determinations, including whether there exists
native natural gas in the Clinton formation under the condemned
tract to the extent that its recovery would be economically
justified.

"1. Comparable Sales. One method in determining fair
market value would be to consider comparable sales of easements
for the purpose of allowing the storage of natural gas in the
Clinton formation. If no evidence is offered of such
comparable sales, this method is not available to assist you in
determining just compensation.

"2. The Existence of Sufficient Natural Gas Allowing for
the Commercial Recovery in Sale of the Natural Gas. A second
method of determining fair market value, and in turn just
compensation, rests upon evidence offered by landowner that
sufficient natural gas remains under the landowner tract so as
to allow the commercial recovery and sale of that natural gas.
If the landowner so proves, then in determining just
compensation, you may assess the foreseeable net income flow
from the property for its productive life reduced to a present
value figure.

"In other words, in fixing just compensation, you would
determine the probable revenues and costs for the production
and sale of native natural gas from the condemned tract and
reduce the net sales value by the interest the landowners will
enjoy for an early, one time payment.

"3. The Fair Market Value of the Storage Easement Based
upon a Capitalization of Retail Income for the Right to Store
the Gas. If you do not find there exists commercially
recoverable reserves of oil and gas, a third alternative method
of finding fair market value, and in turn just compensation,
involves determining the fair market value of the storage
easement based upon a capitalization of the rental income for
the right to store the gas. In so determining, you shall use
the date of the filing of the condemnation as the starting
point and the termination of the storage field as the ending
date.

"Fair market value by a capitalization of the rental
income is determined by multiplying the acreage rental by the
comparable storage rights to arrive at the present worth of the
future income stream. In applying this method, the fair market
value of the storage easement is equated to a capital sum
which, when invested as of the date of filing, would earn
income equal to the comparable storage rentals for the future.

"4. Depreciation in the Fair Market Value of the Condemned
Tract as a Whole by Reason of the Taking of the Storage
Easement. This alternative method of determining fair market
value, and, in turn, just compensation, involves determining
the difference in the fair market value of the entire condemned
tract before and after the taking. This determination is
accomplished by establishing the fair market value of the
entire condemned tract before the taking and deducti[ng] the
fair market value of the entire tract immediately after the
taking. If this method is chosen to determine just
compensation, the fair market value of the storage easement is
equated to the difference, if any, between these before - and -
after values of the entire condemned tract.

"5. Mineral leases. The existence of a lease for the

production of native oil and gas from the property is not
evidence of the existence of such oil and gas. However, you
must award nominal damages to the holder of such a lease even
if the presence of native oil and gas in paying quantities is
not proven to a reasonable probability.

"6. Viewpoint of value. Just compensation is measured
from the point of view of the landowner. The yardstick is what
the landowner has lost, not what Columbia has gained.
Therefore, you are not to consider the value of the storage
easement to Columbia, nor may you consider any increase or
increment in value by virtue of the activities of Columbia in
reference to the gas storage field for which the easement is
acquired. For example, if there is, within the storage
easement, some amount of native oil and gas, but not in paying
quantities, so that they had no effect on the market value of
the subject tract on the date of taking, you would not take
native oil and gas into account."

Moyer, C.J., A.W. Sweeney, Douglas, Wright, Resnick, F.E. Sweeney and Pfeifer, JJ., concur.

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