Diminution in Property Values

Just as views of and proximity to mountains or the ocean or a park increase the value of a property, studies consistently find that views of and proximity to high voltage transmission lines decrease the value of a property. That decrease in value is called diminution in property value.

Diminution in value is defined as:

“Rule of damages which provides the difference between “before” and “after” values of property, which has been damaged or taken.”

Article 2, Section 17 of the Arizona Constitution provides the right to just compensation for private property damages.

“No private property shall be taken or damaged for public or private use without just compensation having first been made … and no right of way shall be appropriated to the use of any corporation other than municipal, until full compensation therefor be first made in money, or ascertained and paid into court for the owner, irrespective of any benefit from any improvement proposed by such corporation, which compensation shall be ascertained by a jury, unless a jury be waived as in other civil cases in courts of record, in the manner prescribed by law.”

In Oliver v. Henry (2011), the Arizona Court of Appeals determined:

“Oliver was not required to sell, exchange, or otherwise dispose of his damaged and subsequently repaired Jeep Wrangler in order to demonstrate an actual and provable loss in value; instead, the loss could be established through other competent means, such as expert appraisal of the pre-loss and post-repair values.”

Thus, in Arizona, utilities may have substantial risk of a jury trial for diminution in property values as determined by expert appraisal.

What do the experts say?

Fortunately, diminution in property value from high voltage power lines is well-studied. We will add more studies here as time permits. One heavily cited study comes from Sims and Dent in 2005 and estimates a damage in property values from 6% to more than 20% (p. 680):

“Using frequency analysis to determine the impact on selling price at various distances from the nearest pylon indicates that the value of property within [328 feet] of the [high voltage transmission line] is reduced by 6–17 per cent (an average of 11.5 per cent). The presence of a pylon was found to have a more significant impact on value than the [high voltage transmission line] and could reduce value by up to 20.7 per cent compared with similar property sited [820 feet] away.”

When compared to estimates of real estate brokers (”agent”) and appraisers (”valuer”), the same study found that these experts actually underestimated the negative effects on value but were generally in range:

How does this affect undergrounding?

Unfortunately, when evaluating routes, the utility companies leave out an estimate of these costs despite Arizona law. While lawsuits may be less likely in rural areas with large setbacks, high density areas have no way to offset or minimize private damages and property owners are much more likely to sue for recovery. We believe it is prudent to include an estimate of these costs in a comparison of overhead to underground.

Here is a table estimating private property damage per mile given various assumptions about corridor width and damage percentage.

Property Value Damage Estimate per Mile (in millions)

*Assumes the median residential home sales price is $350,000 and the median lot size is 7,000ft2 for a median sales price per residential lot ft2 of $50.00. Also assumes 50% of the property per mile is public property.

Thus, private damages, which could ultimately be borne by utility investors or ratepayers, can be significant. If a 1,000 ft corridor of 10% private damage is included, then $13.2 million per mile must be added to any overhead differential estimate.

Taking into account the full range of costs and savings to ratepayers of overhead versus underground, overhead can be substantially more expensive than underground in certain settings. The worst case scenario is an overhead route that costs more than an underground route because a utility company ignored these risks.

Would a successful lawsuit against a utility be a ratepayer expense?

This is an interesting question. Are management error costs recoverable from ratepayers? Are lawsuit costs depreciated? What’s the incentive for management to be prudent if carelessness is a recoverable cost?