Pushing for pipelines as utilities

Scranton native Tom Karam is buying the pipeline company spearheading the effort to have natural gas gathering lines declared utilities, subject to regulation but able to condemn land by eminent domain.

Figuring that local roots, pipeline experience and knowledge of state regulations will help the nascent industry gain legitimacy, Karam is scheduled to close on Laser Northeast Gathering LLC from its Houston owners within the week for an undisclosed sum. That makes Karam, former president of Southern Union Co., the point man in Laser’s application before the state Public Utility Commission.
On the eve of Wednesday’s PUC public hearings in Great Bend and Montrose on the controversial move, Karam wants to defend Laser Northeast’s application and make the case that his company will invoke eminent domain rarely and responsibly.
Karam knows the public is anxious about the impact of drilling in the Marcellus Shale and eminent domain, a process he said is misunderstood. He blames the landmen and gas exploration companies that preceded him.
“People are going to vent about the low-ball easements, about drilling companies and landmen lying to them; about being threatened with eminent domain. People are worried about the environment. I can’t disagree with any of those reasons,” said Karam, who owns property in Susquehanna County currently under lease. “To the extent this industry’s reputation has been hurt, its wounds are self-inflicted.”
Eminent domain is a last resort, not a negotiating tactic, he said. Laser Northeast would be committed to reaching agreements with property owners, Karam said, noting that 60 percent of the easements for the 30-mile Pennsylvania portion of the line are already in hand.
If a dollar amount cannot be agreed upon, the matter goes to an independent quasi-judicial board of view that determines a fair value and orders the amount paid to the landowner in exchange for the pipeline easement. Even property owners who don’t want a pipeline on their land at any price could be forced to host it – and be compensated – through eminent domain and its premise that the public good sometimes outweighs the individual good.
Playing the eminent domain card is bad business and creates negative feelings and unnecessary costs, Karam said. Also, a utility’s use of eminent domain is not unfettered – it’s monitored by the commission.
People fear a company with eminent domain could result in a pipe through the center of their property, possibly foiling future plans for a subdivision or swimming pool. Unlikely, Karam said. The rule of thumb when siting a line is to put it along the property line, within the zoning setback where it would not interfere with development.
Most drilling has been limited to areas around existing natural gas transmission lines. Every well must eventually be connected by pipeline to the type of gathering system proposed by Laser Northeast.
After leaving Southern Union Co. as president and chief operating officer in 2006, Karam was involved in a number of businesses, forming Delphi Midstream Partners LLC last year with another investor and American Securities LLC, a private equity firm tracing its roots to the heirs of the Sears, Roebuck & Co. fortune. On board are other Southern Union executives and Scranton-area natives, Harry Dowling and Vince Bonaddio.
The start-up company bought a 20-mile gathering line and compressor station in the Barnett Shale partially regulated as a utility in Texas. That’s miniscule compared the utilities and pipelines in seven states that had been under Karam and his partners at Southern Union. From 1995 to 2001, Karam was chief executive officer of Pennsylvania Enterprises Inc. and PG Energy Inc., which included the local water and natural gas utilities. Those businesses were acquired by Austin, Texas-based Southern Union. While Karam was at Southern Union, it acquired the natural gas pipelines formerly owned by Enron and pieced together more than 18,000 miles of interstate transmission lines. The company owned utilities in several states, a liquified natural gas terminal in Louisiana and gas storage and transportation companies.
Southern Union in 2004 built what was to be its lavish corporate headquarters on Lackawanna Avenue in Scranton, but the Enron pipeline acquisition shifted the company’s focus, and the company never occupied the building.
Karam, who always maintained his Waverly residence, never thought natural gas would bring him back to Pennsylvania.
This pipeline will be the first of what Karam hopes will be several Laser develops in the Marcellus region. Even after construction of the proposed pipeline, Laser Northeast will have assets of $198 million, according to the application, enough to build four more similar pipeline.
“It’s exciting being part of the beginning of the Marcellus and bring investment to the area,” he said. “We are on the ground floor, we will do it right, and gain a reputation for credibility, efficiency and reliability.”
The public hearings will be held at Wednesday, 1 p.m. at Great Bend Hose Company 1, Church and Tannery streets in Great Bend and at 7 p.m. at American Legion Gardner-Warner Post 154, Elk Lake Road in Montrose.

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