Many companies transporting oil and gas by pipeline find it to be more expedient to rent rights-of-way from public utilities, rather than go through the effort and expense of acquiring their own permanent rights. The contracts governing these leases are generally designed to last for many years, and as a result they often contain mechanisms that allow the lessor to adjust the rate of the lease over time to account for both inflation and the natural appreciation of surrounding property values.
Recently, one of Spesia & Ayers’s clients found itself in precisely this situation. The Client had been renting a right-of-way from another utility (“owner utility”) for many years, and the owner utility had determined that changes in property values warranted the exercise of its rate adjustment clause. Such an adjustment was expected, but problems arose when the utility misinterpreted the terms of the lease agreement and tried to raise the annual amount of the lease by more than $500,000.00 (an increase of nearly 200% over the old lease rate). After reviewing the relevant lease agreements, previous orders by the Illinois Commerce Commission, and communications between the Client and the utility, Spesia & Ayers Partner Christian G. Spesia and Associate Michael A. Santschi were able to formulate a strategy that informed the utility of its error in a manner that allowed both parties to save face and come to an agreement regarding the rate increase for the Client’s lease. In doing so, Spesia & Ayers helped the Client save more than $500,000.00 a year in expenses, all without the delay and expense of litigation.