Thursday, December 8, 2011

The Bradley/Carson Amendment: All Smoke and Mirrors

A guest blog on the Bradley/Carson amendment to HB 648 offered in the Senate Judiciary Committee on December 8, 2011. This is the first in a series of two blogs.
We will leave it to other commentators to talk about what could possibly have motivated Senate Judiciary Committee Chairman Houde and Senators Luther, Groen and Carson to vote unanimously in favor of the Jeb Bradley/Sharon Carson amendment to HB648.
For our part, we’ll focus on the substance of the Bradley/Carson amendment. Will this proposed legislation help landowners who are faced with the potential for eminent domain by Northern Pass or any other private, participant-funded transmission line?
The answer is a resounding "no."
Let’s analyze the  section by section to see how it really works.
The first key change in the Bradley/Carson amendment is a new provision that purports to protect property owners from wrongful threats of eminent domain.   Unfortunately for landowners, this provision is all hat and no cowboy.   Let’s go to the scoreboard:
·         First and foremost, the Bradley/Carson amendment gives absolutely no effect to the substantive limits on eminent domain in Article 12-a of the state constitution, makes zero attempt to define the classes of transactions for which eminent domain is prohibited, and leaves on landowners the almost impossibly expensive and time-consuming burden of litigating whether private transmission lines can use eminent domain.  Article 12-a prohibits eminent domain for private development projects.  At least two members of the Senate Judiciary Committee (Senators Houde and Groen) have stated clearly that private transmission lines like Northern Pass are “private developments” and are prohibited from eminent domain under Article 12-a.  But strangely, the Bradley/Carson amendment has absolutely no substantive prohibitions on the kinds of projects that can use eminent domain.  The amendment just sits there, fat, dumb and happy, pretending that there is no need to update the 100-year old eminent domain statutes to redline new forms of private development projects that cannot constitutionally use eminent domain.  Landowners are left in the lurch.  The Bradley/Carson amendment abdicates the clear legislative responsibility to define with precision when eminent domain is available.  The amendment makes zero forward progress on the key issue – crafting a clear legislative solution that private transmission lines like Northern Pass have no right to use eminent domain.  Bradley/Carson cynically leaves on landowners’ shoulders the uphill battle of spending money to litigate (against well-funded corporate opponents) the question of eminent domain authority before the Public Utilities Commission and the courts.

·         Bradley/Carson’s new “threat” limits are toothless and don’t help landowners.  Perversely, they are drafted to help Northern Pass by providing a new “safe harbor” for Northern Pass’s longstanding strategy of threatening eminent domain via broad public statements.  The new provision prohibits only those eminent domain threats that are made in “landowner negotiations."   That leaves open the abusive course of action already employed by Northern Pass, which is to make broad public threats of eminent domain in press statements, interviews and federal and state regulatory filings.  Northern Pass has already put eminent domain front and center in every landowner conversation, without having to mention the words in one-on-one negotiations.  Rather than any new limit that protects landowners, Bradley/Carson is in fact a safe-harbor for Northern Pass.  It allows Northern Pass to continue business as usual in buying up land in abusive, unequal bargaining situations, having already put the eminent domain threat out into the public domain.

·         Bradley/Carson’s financial penalties for wrongful “threats” are peanuts -- just a small cost of doing business – and aren’t near enough to stop abusive threats.  In the context of a project like Northern Pass, which is projected to generate $1 billion of average export sales per year for Hydro-Quebec, $68 million a year in equity returns for Northeast Utilities and NSTAR and as-yet undisclosed right of way rental fees for PSNH (we estimate in the tens to hundreds of millions of dollars annually), what is the impact of a possible $25,000 civil penalty?  Essentially zero.  If Northern Pass needs a $1 million dollar property to site its line, a $25,000 penalty for a free pass to explicitly threaten the landowner with eminent domain costs Northern Pass only 2.5% of the purchase price.  That’s just a small bit more than the real estate transfer tax, and a lot less than the fees they are likely paying their real estate agents.

·         What’s the bottom line?  Bradley/Carson does nothing to stop eminent domain for private transmission lines.  Bradley/Carson does nothing to stop Northern Pass’s current abusive strategy of making broad public announcements of the eminent domain threat, so they become part of every landowner discussion without any new mention of the words.  In fact, the amendment effectively gives Northern Pass a free pass to continue this abuse.  And if there are key landowners that Northern Pass really, really wants to threaten with eminent domain, Bradley/Carson doesn’t stand in the way, because the $25,000 penalty is peanuts and just a small cost of doing business.

The second main provision of the Bradley/Carson amendment deals with the purchase price for landowners.   The amendment says eminent domain can’t be used against a landowner unless the landowner has previously been made an offer by the transmission line developer at a price of 200% of appraised value, and the landowner rejected the offer.   Sounds sort of good on a first read, but the fine print shows, once again, that this provision hurts property owners and is all about helping Northern Pass.  To the scorecard:
·         The “200%” promised to landowners is not based on any objective baseline value, but instead is based solely and exclusively on the transmission developer’s own appraisal.  That means there is no landowner protection at all because there are no objective value numbers.  We all know what Northern Pass’s appraisers have said – really ridiculous stuff such as transmission lines have no material impact on land value.   There is no requirement in Bradley/Carson for an independent, professional third-party appraisal, or even a reference to town tax appraisals.  Northern Pass can say to a landowner “our appraiser puts a value of $10,000 on the 150’ strip of land we want to buy as an easement," and that’s the end of the story under Bradley/Carson.  If Northern Pass then offers the landowner $20,000, and the landowner says no because selling the easement will knock $50,000 off the value of the full 50-acre parcel, tough on the landowner.  Northern Pass can then proceed to eminent domain under Bradley/Carson and pay the landowner only fair market value.  And don’t be fooled by that pretty little provision in the amendment that says landowners can get their own appraisals and even get reimbursed $1,500 for the expense.  Read the fine print.  The landowner’s appraisal is completely irrelevant to the baseline for the 200% price.  It’s solely the transmission line developer’s appraisal.  Very sneaky, cynical and tricky stuff here indeed….

·         The “200%” price is only for the interest in land sought by the transmission line developer (likely just a strip easement across the land) and gives no effect to the much larger part of a landowner’s damages, the diminution in value to the rest of the parcel that will be severely harmed by the transmission line easement.  If a landowner owns a 50-acre parcel with a current market value of $100,000, bisecting the land with Northern Pass’s transmission line on a 150’ strip easement will likely knock 50% or more off the value of the land, or a $50,000 loss.  Under Bradley/Carson, Northern Pass would provide the landowner with NP’s own appraisal of just the 5 acres needed for the 150’ strip easement, with a value of, say, $10,000.  If Northern Pass offers the landowner $20,000 for the easement (200% of NP’s own appraised value), Bradley/Carson then gives Northern Pass a free pass to proceed to eminent domain if the landowner doesn’t take the offer.  But look at the numbers – the landowner’s actual loss is $10,000 for the 5 acres of easement land (if you believe NP’s appraisal!) and $50,000 of loss on the remaining land that will be harmed by the siting of the lines.  That’s $60,000 of total loss, but the landowner was offered just $20,000 (just a third of the loss!) as the supposed “fairness test” under Bradley/Carson to let Northern Pass get to eminent domain.  Bradley/Carson is financially incoherent, grossly unfair to landowners, sets a supposed “fairness” test to get to eminent domain that in fact has no teeth, and once again works in favor of Northern Pass (to speed them to eminent domain).

·         The “200%” price is only a test price for eminent domain, and does not set a floor for what the landowner will receive in eminent domain.  In fact, Bradley/Carson doesn’t change the current law that says a landowner will get only fair market value in eminent domain.  Bradley/Carson would codify into law the current Northern Pass abuse of making a fat offer up front to a landowner with a short time deadline, with the understood (but unstated) threat that if the landowner doesn’t go along, she’ll get only market value in a later eminent domain proceeding.   We are realistic about the challenges and deficiencies in the legislative process, but this is truly ridiculous.  Bradley/Carson is structured as if it is expressly intended to harm landowners.  How could that be possible?  There was some discussion today at the Judiciary Committee about providing some price protection for landowners in the eminent domain proceeding, but it remains to be seen how that might be done.

·         Finally, to add insult to injury, Bradley/Carson is structured to provide an express subsidy to Northern Pass out of the pockets of landowners!  By setting 200% of NP’s own “appraised value” as the cap on the negotiated price before Northern Pass can go directly to eminent domain, Bradley/Carson substantially undercuts the 5x or higher multiple that has been established as the current fair market price for Northern Pass’s land purchases for transmission line development.   The amendment will effectively take this money from landowners and give it to Northern Pass.  In recent months Northern Pass has been paying multiples of five times or more fair market value for land purchases for the transmission lines.  Landowners who decide to sell a parcel with a fair market value of $100,000 are often being offered or paid $500,000 or more by Northern Pass or its affiliates or agents.  This is of course expensive for Northern Pass.  Bradley/Carson, whether intentionally or not, would have the effect of knocking that premium down from 5x or more to 2x (200%).   After all, if Northern Pass gets a free pass to eminent domain after offering only 2x, and they can get the property in an eminent domain proceeding for 1x (fair market value), there would be no incentive to offer more than 2x.  In a Bradley/Carson world, if Northern Pass believes it will be able to convince a captive New Hampshire Public Utilities Commission to order eminent domain, a rational Northern Pass will ratchet down its offer prices to the 2x in the legislation.  Is this what one would call an "unintended consequence" of Bradley/Carson – to suck more of the economics out of landowners and hand them over to Northern Pass?
In the interests of avoiding reader fatigue, we’ll stop here for now.
In a future post, we will examine the other provisions of Bradley/Carson.  As you might guess, from a landowner protection perspective, the rest of the amendment is no more than disappearing ink.
For the record, we’ve used Northern Pass to illustrate the fatal flaws in the Bradley/Carson amendment.   Northern Pass is just one of many private, participant-funded transmission lines on the planning horizon for New Hampshire.  There is a massive landowner protection and property rights issue facing the state. 
And Bradley/Carson is totally the wrong solution.

[Analysis of the B/C bill continues here.]