ANALYSIS: Eminent Domain for Private Companies?


[Update: S.868 has been amended. The amendment has replaced the entire text of the bill with a provision stating that the eminent domain powers granted to telegraph and telephone companies do not apply to for-profit pipelines that are not public utilities. In other words, the new version of the bill makes it clear that oil pipeline companies do not possess eminent domain powers. The language prohibiting private for profit non-utility companies from exercising eminent domain would sunset in five years. ]

Sometimes an innocuous-sounding bill strikes at the heart of what it means to foster a well-functioning representative democracy that protects individual rights. That is the case with two bills currently in the South Carolina legislature.

First, some background. Secure and enforceable property rights are the cornerstone of any stable economic system. The absence of clearly defined and defensible property rights discourages production and investment and thus hinders economic growth. On a personal level, allowing the arbitrary seizure of property hinders the ability of individuals to improve their own wellbeing through the acquisition and improvement of property.

Defenders of free markets have therefore opposed the power of eminent domain – the process by which government grants itself or a private entity the ability to seize the property of a third party for uses government defines as appropriate. The Policy Council likewise opposes this power, but we would add that as long as it’s permitted, it should come with significant restrictions. As long as we have eminent domain, takings should only be allowed for the purpose of public use. In this case, public use means projects that are publicly owned and made open and available to all members of the public, such as roads and parks.

The South Carolina Constitution says that private property must not be condemned unless the condemnation is for public use, but the phrase “public use” is undefined. The lack of definition opens the law to abuse. Thus state law gives the power of eminent domain to many private companies considered to be “public utilities” (telephone companies, electric lighting and power companies, water supply companies, pipeline companies, and canal companies). It has been successfully argued in the courts that a taking by a public utility – private company though it is – constitutes a “public use” even if the services of the utility are only available to a fraction of South Carolina’s population.

Two companion bills, H.4326 and S.868, would allow eminent domain to be exercised for the benefit of companies constructing pipelines for transporting petroleum products. The bills would require a petroleum pipeline company to receive certificates and permits from the Public Service Commission (PSC) and the Department of Health and Environmental Control (DHEC) before exercising the power of eminent domain. But the most significant aspect of these bills is the granting of powers unsanctioned by existing law.

In fact, a recent opinion from the Attorney General’s office held that under current law eminent domain cannot be exercised for the purpose of petroleum pipelines. According to the Attorney General’s Office, the placement of the statute granting eminent domain powers to pipeline companies into a section of the code dealing with public utilities, together with the legislative history of the act – the act was created after a court case concerning the eminent domain powers of a natural gas pipeline company – both indicate the law wasn’t intended to extend to oil pipelines. The Attorney General’s Office further pointed out that a South Carolina court has never held an oil pipeline to be a public utility, and that there is no history of decisions classifying the services of an oil pipeline as a “public use.”

Even if we consider the operations of a public utility to meet the classification of a public use, an oil pipeline clearly fails to meet the standards of a public utility. Giving oil pipeline companies the power of eminent domain would allow private property to be seized against the will of its owners for the benefit of a private company. This is precisely the opposite of what South Carolinians intended when, in the wake of the Kelo Supreme Court decision, they approved an amendment to the South Carolina constitution prohibiting takings for any purpose other than public use.

Citizens have a right to be secure in their property. That oil pipeline companies “need” private land does not afford them the right to take that land without the owners’ consent. Allowing them to do so is both unjust and arguably unconstitutional.

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