|
Alyeska loses to state on ROW valuation Alaska Supreme Court affirms Superior Court on DNR 2002 appraisal of value of trans-Alaska oil pipeline state right-of-way leases Kristen Nelson Petroleum News
Alyeska Pipeline Service Co. has lost an appeal of the Department of Natural Resources’ 2002 appraisal of the value of trans-Alaska pipeline system leases at $236,000 per year.
In a Nov. 23 ruling the Alaska Supreme Court affirmed a decision by the Alaska Superior Court upholding DNR’s appraisal of the TAPS lease price.
Alyeska had appealed to the Alaska Supreme Court, arguing that DNR misinterpreted state statute on calculation of the lease price; that DNR was required to adopt its interpretation of statute as a regulation; and that the appraisal improperly included submerged lands within the right-of-way.
Under Alaska’s Right-of-Way Leasing Act DNR is required to adjust the lease price for the TAPS right of way every five years, the court said. In 2002, DNR and the U.S. Bureau of Land Management hired Black-Smith & Richards Inc. to appraise state and federal lands within the right of way. Black-Smith was instructed to appraise the right of way based on the fair market value of the land. DNR notified Alyeska in December 2002 that it had approved the Black-Smith appraisal and that the annual rent for state lands within the right of way would be $236,000 per year.
Second appraisal Alyeska had a review of the Black-Smith appraisal done by real estate appraiser Al Olson and Olson’s review found potential issues, two of which the court said were relevant.
Olson said the appraisal’s valuation of state lands at 100 percent did not account for the fact that under its leases Alyeska did not have exclusive use of the land and speculated that if Black-Smith had been allowed to consider the non-exclusive use it might have valued the land at 75 percent fee value, which Olson referred to as the encumbrance of rights issue.
Olson also noted that the appraisal included 205.78 acres of submerged lands which were disputed acreage in navigable waterways, but the appraisal did not value the lands as such, referred to as the submerged lands issue.
Alyeska appeals Alyeska appealed DNR’s appraisal to the commissioner, raising the encumbrance of rights issue and the submerged lands issue and requesting that the appraisal be reexamined and revised on those grounds.
The commissioner affirmed DNR’s decision in September 2006, rejecting the encumbrance of rights argument and ruling that the state Right-of-Way Leasing Act required that the lease price be based on the fair value of land without reduction for rights retained by the state or granted to third parties, but refused to address the submerged lands issue, stating that there was an agreement with Alyeska not to address that issue.
Alyeska appealed to the Alaska Superior Court, disputing assessment at 100 percent of value even though Alyeska’s leasehold rights were not exclusive and disputing an oral agreement on the submerged lands issue. Alyeska asked the court to remand to the commissioner on the submerged lands issue, which the court did.
In April 2008 the commissioner affirmed the appraised valuation of submerged lands along the right of way.
In August 2010 the Superior Court affirmed the commissioner’s final ruling.
Alyeska appealed to the Alaska Supreme Court, arguing that valuation should include consideration of the non-exclusive nature of the leasehold interest. Alyeska argued that even if DNR correctly interpreted the Right-of-Way Leasing Act, DNR was required to adopt its interpretation as a regulation. Alyeska also argued DNR’s appraisal improperly included submerged lands when it had failed to establish the state held title to those lands.
No regulation required The court found that DNR’s interpretation of the Right-of-Way Leasing Act was reasonable, and it was not required to adopt a regulation.
The court said the act “broadly defines ‘state land’ as ‘any interest owned by the state in land if the interest is sufficient to permit the state to lease it” under the act, which refers to the definition of state land under the Alaska Land Act, which “defines ‘state land’ as ‘all land, including shore, tide, and submerged land, or resources belonging to or acquired by the state.’”
Rights not exclusive The court said that when the commissioner rejected Alyeska’s argument that it should not pay 100 percent of the value for non-exclusive rights, the commissioner reasoned that the law required the lease price to be based on fair market value of state right-of-way land, defined as any interest owned by the state, “not just the interest granted to Alyeska via the right-of-way agreement,” and did not require a reduction for rights retained by the state or granted to third parties “where, as here, those interests did not reduce the value of the land.” The commissioner noted Alyeska’s use of the right of way was protected by law from incompatible uses and said that as of the date of the appraisal “none of the third-party interests within the TAPS right-of-way interfere with the TAPS right-of-way grant.”
The court said Alyeska challenged the ruling on several grounds.
The court said it found DNR’s interpretation of statute for the method of calculating right-of-way prices was reasonable, and said it “is consistent with the plain language of the statute and the statutory definitions of ‘state land’,” including the broad definition in the Right-of-Way-Leasing Act of state land as all land and any interest in land owned by the state.
The court said, “Although Alyeska focuses on the fair market value of the leasehold interest, the correct analysis focuses on the fair market value of the state land.” The court also said it agreed that if there were to be third-party uses that reduced the value of the land, “as opposed to the value of the lease,” then the value would take those third-party interests into account.
The court also found DNR’s “conclusion that the plain language of the statute requires the lease price to be based on the fair market value of the state land within the right-of-way, rather than the fair market value of the leasehold interest, is reasonable.”
The court also said DNR was not required to adopt a regulation because its interpretation did “not add substantive requirements to the statute” but simply interpreted the statute according to its own terms.
Constitutional argument The court said Alyeska also argued that DNR’s interpretation of statute “unlawfully burdens interstate commerce in violation of article I, section 8 of the federal constitution because it results in a lease price that exceeds ‘fair compensation’ for a non-exclusive lease such as the TAPS lease.”
But, the court said, Alyeska did not raise this issue in its appeal to the commissioner or in its appeal to the Superior Court, “but raised the issue for the first time in its reply brief before the superior court. Alyeska also offers little argument or authority supporting its argument, relying exclusively on a single paragraph quoted from a 1973 trial court brief.” The court said it agrees with DNR that Alyeska waived this argument because it did not raise the issue in its appeal to the commissioner or on appeal to the superior court, and “has abandoned the issue by briefing it in such a cursory fashion.”
The court also ruled that DNR was not required to prove the state held title to submerged lands within the right of way.
It said that while Alyeska argued it was required to pay rent to both the state and the federal government, it “failed to demonstrate that it was actually required to pay rent to both the state and federal governments for the same submerged lands within the TAPS right-of-way.”
The court said that on appeal Alyeska relied exclusively on its appraiser’s statement that the Black-Smith appraisal included lands which were reported to be disputed acreage in navigable waterways. But the court said the appraiser’s statement “is essentially hearsay” and does not establish that Alyeska was required to pay rent to both governments for the same submerged lands within the right of way.
| 