Marcellus Shale in Pennsylvania: The Road to ACT 13 (Part 2)

Marcellus Shale in Pennsylvania: The Road to ACT 13 (Part 2)

Gas Law before ACT 13

Prior to the natural gas boom which began around 2005, almost all regulations relating to Oil and Gas wells fell under the umbrella of the Oil and Gas Act of 1984, Public Utilities Commission ("PUC"), Pennsylvania Department of Environmental Protection ("DEP"), and local land use ordinances. Other regulations and statutes such as the Oil and Gas Conservation Law, Coal and Gas Resource Coordination Act, and the Clean Streams Law filled the gap and provided limited guidance in issues regarding the rule of capture, multi-well pad drilling, and protection of groundwater. The swift and massive amount of drilling that was sweeping through the countryside of our state led to many cries for new regulations regarding the booming industry. Municipalities and Counties tried to stop, control, or limit the amounts of drilling but often to no avail as the Oil and Gas law preempted local municipalities.

Preemption of Laws

Generally, there are three types of legal preemption:

1. Express Preemption – where the higher authority (State) expressly stated in a statute or law that all local government law is "trumped" or preempted.

2. Field Preemption – where there is no express preemption, but the higher authority (State) occupies the "field" in question. If the higher authority regulates the field in dispute, there is likely field preemption.

3. Conflict Preemption- when the State and local governments have laws which would conflict in procedure or result; the State law "trumps" the local government.

State Law vs. Local Governments

As concerns about pollution, hazardous chemical leaks, and groundwater contamination grew from media exposure, many towns enacted strict land use guidelines which often infringed upon the statewide Oil and Gas Act which was designed to preempt any local ordinance from regulating oil and gas production. In a pair of landmark Pennsylvania Supreme Court cases in 2009, the Supreme Court attempted to establish consistency and guidance to both landowner and gas company alike in determining whether municipalities were preempted from regulating drilling operations through zoning. In Huntley & Huntley, Inc. v. Borough Council of Borough of Oakmont, the Supreme Court was faced with the issue of whether a local ordinance which banned "extraction of minerals" in a residential district was preempted by the Oil and Gas Act. In Huntley, the trial court upheld the borough's denial of a conditional use permit and held that the zoning ordinance was not preempted by the Oil and Gas Act. The Commonwealth Court of Pennsylvania reversed and held that the ordinance was preempted by the Oil and Gas Act.

The Pennsylvania Supreme Court cited a Colorado opinion which discussed the competing interests of oil and gas development and municipal land-use control. The Court used quoted language stating that,

"While the governmental interests involved in oil and gas development and in land-use control at times may overlap, the core interests in these legitimate governmental functions are quite distinct. "

The Supreme Court in Huntley held that absent further legislative guidance, the local ordinance served a "different purpose" from those enumerated by the Oil and Gas Act and thus the ordinance was not preempted. This ruling solidified that a town could restrict drilling in a residential district. However, regarding the Borough's denial of a conditional use permit to the gas company to drill on private land in residential zone, the Court upheld the Commonwealth's Court interpretation as reasonable that the conditional use should be granted since drilling for natural gas was "extracting for minerals" which was authorized under a conditional use permit.

In the companion case to Huntley, the Pennsylvania Supreme Court in Range Resources Appalachia, LLC v. Salem Tp., again tackled the preemptive scope of the Oil and Gas Act with relation to local ordinances designed to limit or prevent gas drilling within the municipality. The municipality, Salem Township, enacted a general ordinance directed at regulating surface and land development associated with oil and gas drilling operations. The Court stated that the Salem Township ordinance "focuses not on zoning or the regulation of commercial or industrial development generally, but solely on regulating oil and gas development". The Court noted that the Ordinance did not guarantee issuance of a permit even if the applicant complies with all requirements. The Court stated in sum that "not only does the Ordinance purport to police many of the same aspects of the oil and gas extraction activities that are addressed by the Oil and Gas Act, but the comprehensive and restrictive nature of its regulatory scheme represents an obstacle to the legislative purpose underlying the Oil and Gas Act, thus implicating principles of conflict preemption. The Court held that the Ordinance was invalid as it was preempted by state law.

The Supreme Court distinguished the Huntley and Range Resources opinions by stating that the Salem Township ordinance is "qualitatively different form the zoning enactment at issue in Huntley that sought only to control the location of wells consistent with established zoning principles. Although the scope of preemption by the Oil and Gas Act with regard to local ordinances tailored to ban drilling was given limited clarity by these cases, there was still a need for uniformity for both landowners and gas companies to have adequate notice of their legal rights.

How Judges Interpret Local Ordinances

"The Devil is in the detail"

Although Huntley gave municipalities a valuable tool to combat natural gas drilling operations in residential zones, the Commonwealth Court stripped away some local autonomy in the In Re Township of Bradford opinion of 2012. The ordinance at issue in In Re Township of Bradford permits oil and gas production in the residential district and allows the installation of equipment necessary to drilling and pumping operations. The Township of Bradford sought to exclude a compressor station from areas zoned for residential use because of public outcry of safety concerns. The Zoning Hearing Board concluded that the compressor station was not "gas production" but was actually "gas processing" and therefore was not permitted in the residential district. The gas company, New Century Pipeline, appealed from a decision of the Zoning Hearing Board that the compressor station is not permitted in the Forest District. The Trial Court agreed and concluded that New Century's compressor station was processing gas because it was a step taken after the gas had moved a few feet from the wellhead, and it effected a chemical change on the thing acted upon, i.e., the natural gas.

The Commonwealth Court disagreed with the Zoning Board and Trial Court and held that the ordinance permitted the compressor station in the residential district. The Commonwealth Court stated that "the defining issue is the meaning of 'oil and gas production, including equipment necessary to drilling or pumping operations,' as used in the Zoning Ordinance." The Court went further and clarified that "the activity of drilling requires the 'proper permits and approvals' of the Department of Environmental Protection (DEP)…..the evidence is uncontroverted that without the compressor station, New Century's gas at the wellhead is useless, except, perhaps, for flaring and roasting marshmallows…." The Court reversed the Trial Court and declared that operation of a compressor station is "gas production." The significance of the In Re Township of Bradford case is that local ordinances must be very specific in what permitted uses are allowed in residential zones. Local ordinances should be very carefully crafted in order to prevent opening the flood gates of gas drilling and all of the necessary equipment that follows drilling.

Summary

As the Pennsylvania Supreme Court tackled important issues about a local government's ability to eliminate gas drilling through zoning, many citizens and gas companies were left in confusion after seemingly conflicting opinions and orders. The level of detail needed to enact a proper zoning ordinance became an exhausting process and elected officials saw the need to create a more "common sense" approach to the natural gas drilling boom in Pennsylvania.

Next week we will discuss the GENESIS OF ACT 13.

NOTE

All sections of the 5-part series are cited in original document titled The Effect of the Natural Gas Boom in Pennsylvania by Dan Mulhern. Written in 2012.